Pirates and the Orient: China, Film Piracy, and Hollywood

Volume 14 Issue 2 Article 6

2007

Pirates and the Orient: China, Film Piracy, and Hollywood Pirates and the Orient: China, Film Piracy, and Hollywood

Oliver Ting

Follow this and additional works at: https://digitalcommons.law.villanova.edu/mslj

Part of the Entertainment, Arts, and Sports Law Commons, and the Intellectual Property Law

Commons

Recommended Citation Recommended Citation Oliver Ting, Pirates and the Orient: China, Film Piracy, and Hollywood, 14 Jeffrey S. Moorad Sports L.J. 399 (2007). Available at: https://digitalcommons.law.villanova.edu/mslj/vol14/iss2/6

This Comment is brought to you for free and open access by Villanova University Charles Widger School of Law Digital Repository. It has been accepted for inclusion in Jeffrey S. Moorad Sports Law Journal by an authorized editor of Villanova University Charles Widger School of Law Digital Repository.

http://digitalcommons.law.villanova.edu/

http://digitalcommons.law.villanova.edu/

https://digitalcommons.law.villanova.edu/mslj/vol14

https://digitalcommons.law.villanova.edu/mslj/vol14/iss2

https://digitalcommons.law.villanova.edu/mslj/vol14/iss2/6

https://digitalcommons.law.villanova.edu/mslj?utm_source=digitalcommons.law.villanova.edu%2Fmslj%2Fvol14%2Fiss2%2F6&utm_medium=PDF&utm_campaign=PDFCoverPages

http://network.bepress.com/hgg/discipline/893?utm_source=digitalcommons.law.villanova.edu%2Fmslj%2Fvol14%2Fiss2%2F6&utm_medium=PDF&utm_campaign=PDFCoverPages



https://digitalcommons.law.villanova.edu/mslj/vol14/iss2/6?utm_source=digitalcommons.law.villanova.edu%2Fmslj%2Fvol14%2Fiss2%2F6&utm_medium=PDF&utm_campaign=PDFCoverPages

PIRATES OF THE ORIENT: CHINA, FILM PIRACY,AND HOLLYWOOD

I. INTRODUCTION

On September 28, 2006, a reporter in China purchased a digi-tal versatile disc ("DVD") "from a brightly lit and well-organizedshop opening onto a popular Beijing bar street frequented by expa-triates and just around the corner from a police station."' The

DVD was a high quality illegal copy of Superman Returns, completewith a crisp cover and bilingual audio and subtitle options. 2 Whileseemingly routine, this transaction typifies the Motion Picture Asso-ciation of America's ("MPAA") 3 continuous fight with Chinese filmpiracy: the DVD was a "pristine" counterfeit version selling for amere $1.25. 4

According to the Motion Picture Association ("MPA"), China'spiracy rate has increased each year since 2004.5 Making mattersworse, this upward trend signifies that the World Trade Organiza-tion ("WTO"), which Chinajoined in 2001, has failed to corral Chi-nese piracy.6 According to recent trends, China's compliance with

1. Bootlegging Returns with Superman Sequel, REUTERS NEWS SERVICE, Sept. 29,2006, http://news.zdnet.com/2102-3513_22-6121137.html?part=rss&tag=feed&subj=zdnet [hereinafter Bootlegging Returns] (describing typical digital versatile disc("DVD") purchase in Beijing).

2. See id. (noting condition of DVD).3. See Motion Picture Association of America, http://www.mpaa.org/About

Us.asp (last visited Apr. 8, 2007) (explaining functions of MPAA). "The MotionPicture Association of America (MPAA) and its international counterpart, the Mo-tion Picture Association (MPA) serve as the voice and advocate of the Americanmotion picture, home video and television industries, domestically through theMPAA and internationally through the MPA." Id.

4. See Bootlegging Returns, supra note 1 (illustrating prevalence of high qualityand cheap counterfeit DVDs in China). For a further discussion of the differencesand similarities between legitimate and counterfeit DVDs, see infra notes 75-85 andaccompanying text.

5. See Motion Picture Association of America, http://www.mpaa.org/inter-asia.asp (last visited Apr. 8, 2007) (detailing growing piracy trend in China). TheMPA estimates that between 2000 and 2004, member companies lost over $900million in potential revenue in China. See id. "Piracy is the unauthorized duplica-tion and sale of another's creative work." Gerardo Lara, The Piracy of American Filmsin China: Why the U.S. Art Form Is Not Protected by Copyright Laws in the People's Republicof China, 2 UCLA J. INT'L L. & FOREIGN A'. 343, 344 (1997) (defining piracywithin intellectual property context).

6. See Carl Erik Heiberg, American Films in China: An Analysis of China's Intellec-tual Property Record and Reconsideration of Cultural Trade Exceptions Amidst RampantPiracy, 15 MINN.J. INT'L L. 219, 228, 231-32 (2006) (concluding that China has notyet enacted effective enforcement measures in accordance with the Agreement on

(399)

1

Ting: Pirates and the Orient: China, Film Piracy, and Hollywood

Published by Villanova University Charles Widger School of Law Digital Repository, 2007

400 VILLANOVA SPORTS & ENT. LAW JOURNAL

the Agreement on Trade-Related Aspects of Intellectual PropertyRights ("TRIPS"), the intellectual property ("IP") arm of the WTO,can be summed up by Keira Knightley's character in Pirates of theCaribbean: The Curse of the Black Pearl: "Hang the code, and hang therules. They're more like guidelines anyway. ' 7 As the quote sug-gests, the crux of the Chinese piracy problem is not the lack of con-crete copyright laws, but rather the failure to enforce themproperly.8 To complicate matters, China's central government("Beijing") may lack the ability to rein in film piracy even if itwanted to.9 All of this is particularly draining on Hollywood, as Chi-nese film piracy in 2005 alone cost the MPA studios $244 million inlost revenue.1 0

Trade-Related Aspects of Intellectual Property Rights ("TRIPS")). China formallyjoined the World Trade Organization ("WTO") on December 11, 2001. See id. at228. All WTO members must comply with TRIPS. See id. at 229.

7. Memorable Quotes from Pirates of the Caribbean: The Curse of the BlackPearl (2003), http://www.imdb.com/title/tt0325980/quotes (last visited Apr. 8,2007) (listing quotes from Pirates of the Caribbean: The Curse of the Black Pearl). For afurther discussion of China's failure to comply with TRIPS, see infra notes 35-56and accompanying text.

8. See Brent T. Yonehara, Enter the Dragon: China's WFO Accession, Film Piracyand Prospects for Enforcement of Copyright Laws, 12 DEPAuL-LCAJ. ART AND ENT. L. &POL'Y 63, 66-67 (2002) (asserting reasons for China's inability to enforce its laws);see also Eric Priest, The Future of Music and Film Piracy in China, 21 BERKELEY TECH.L.J. 795, 797 (2006) ("According to copyright industry estimates, more than 90%of all music CDs, movie DVDs, and software sold in China are pirated."). But seePeter K. Yu, Still Dissatisfied After All These Years: Intellectual Property, Post-WTO China,and the Avoidable Cycle of Futility, 34 GA. J. INT'L & COMP. L. 143, 145 (2005-06)[hereinafter Yu, Still Dissatisfied] (challenging accuracy of reported software piracyrate).

9. SeeYu, StillDissatisfied, supra note 8, at 155 (arguing it is wrong to focus onlyon Beijing's lack of political will); see alsoYonehara, supra note 8, at 82 (concludingthat China is too decentralized for Beijing alone to control).

10. LEK, THE COST OF MOVIE PIRACY 7 (2006), http://www.mpaa.org/2006_05_031eksumm.pdf (charting revenue lost in international film markets from in-ternet and hard copy film piracy); see also China Piracy Costs Film Industry $2.7 Bln in2005, REuTERs NEWS SERVICE, June 19, 2006, http://www.boston.com/ae/media/articles/2006/06/19/china piracy-costsfilm-industry_27 bln in_2005 [hereinaf-ter China Piracy Costs] (referring to LEK report finding that Chinese film piracy in2005 cost major U.S. studios $565 million in overall consumer spending loss).Consumer spending loss includes losses incurred by "producers, distributors, thea-ters, video stores and pay-per-view providers." See LEK, supra at 10. Interestingly,the markets where the U.S. film industry experienced the greatest revenue loss in2005 were Mexico ($483 million), the United Kingdom ($406 million), and France($322 million); China actually ranked sixth overall at $244 million. See id. at 7. Yetthe United Kingdom and France did not even make the top ten for highest filmpiracy rates (Mexico ranked sixth, though far below China). See id. at 6. To ex-plain the discrepancy, Mexico, the United Kingdom, and France all possess freermarkets than China, resulting in higher potential revenue for the U.S. film indus-try. See id. at 8. China places a number of restrictions on its film market. See id.For example, China "limits the number of foreign films allowed in theaters eachyear to 20, and imposes a number of restrictions on the distribution of home video

[Vol. 14: p. 399

2

Jeffrey S. Moorad Sports Law Journal, Vol. 14, Iss. 2 [2007], Art. 6


CHINA, FILM PIRACY, AND HOLLYWOOD

This Comment will discuss the current state of film piracy inChina and analyze possible U.S. responses. Section II reviewsChina's copyright laws, its WTO obligations, the level of film piracyin China, and reasons for piracy's success there. 1 Section III ana-lyzes three possible responses to Chinese film piracy. 12 Finally, Sec-tion IV proposes a solution to the problem of Chinese film piracy.' 3

II. BACKGROUND: THE STATUS QUO OF CHINESE PIRACY

The current state of Chinese piracy presents a fairly bleak pic-ture for Hollywood.' 4 Despite China's WTO membership, its up-dated copyright laws, and its general assurances of combatingpiracy, film piracy in the form of optical discs, video compact discs("VCDs") and DVDs, is still rampant in the country. 15

A. Chinese Copyright Laws

China established its original Copyright Law in 1990.16 TheCopyright Law was later amended to conform to the Berne Conven-tion. 17 Finally, in 2001 the Copyright Law was revised to comply

products." Id. These restrictions lower the potential revenue gain for the U.S. filmindustry. See id. Consequently, U.S. film industry losses in China from film piracyare lower when compared to less restrictive countries that provide higher potentialrevenue gain. See id. Pirates, however, can easily operate around these restrictions.See id.

11. For a further discussion of China's copyright statutes and reasons explain-ing why film piracy is rampant in China, see infra notes 14-101 and accompanyingtext.

12. For a further discussion of three possible solutions to combat film piracyin China, see infra notes 102-243 and accompanying text.

13. For a further discussion arguing that only Beijing can effectively curb filmpiracy in China, see infra notes 244-63 and accompanying text.

14. See INTERNATIONAL INTELLECTUAL PROPERTY ALLIANCE, 2006 SPECIAL 301REPORT: PEOPLE'S REPUBLIC OF CHINA 112 (2006), http://www.iipa.com/rbc/2006/2006SPEC301PRC.pdf [hereinafter IIPA, 2006 REPORT] (noting that Chi-nese "piracy rates of physical copyright products remain virtually the highest in theworld ....").

15. See Yonehara, supra note 8, at 68 (describing nature and threat of opticaldisc piracy). This Comment acknowledges the emerging problem of Internet filmpiracy in China but will focus on optical disc film piracy, namely DVDs and videocompact discs ("VCDs") that is currently the most prevalent form of Chinese filmpiracy. See CENTER FOR AMERICAN ECONOMIC STUDIES, INSTITUTE OF WORLD ECO-

NOMICS & POLITICS, CHINESE ACADEMY OF SOCIAL SCIENCES, STUDY OF THE IMPACT OFMOVIE PIRACY ON CHINA'S ECONOMY 2 (2006), https://www.uschina.org/public/documents/2006/07/casspiracyimpacte.pdf [hereinafter IMPACT OF MOVIEPIRACY ON CHINA] (distinguishing three main sources of Chinese film piracy).

16. See Priest, supra note 8, at 808 (noting establishment of China's first Copy-right Law). For a further discussion of China's Copyright Law, see infra notes 28-34 and accompanying text.

17. SeeJulia Cheng, China's Copyright System: Rising to the Spirit of TRIPS Requiresan Internal Focus and WTO Membership, 21 FoRDHAM INT'L L.J. 1941, 1951-52 (1998)

2007]

3




with the TRIPS sections (as required by the WTO) on copyright.18

Many commentators attribute the strengthened Chinese copyrightlaws (and IP laws in general) directly to China's 2001 WTOmembership. 19

1. The Berne Convention

The Berne Convention of 1886 pioneered the internationalprotection of copyright by creating a coalition of nations thatrespected the literary and artistic rights of each member nation.2 0

The Berne Convention also required its signatories to protect cer-tain economic and moral rights. 2 1 The protection afforded to thecopyright holder is fifty years (beyond the author's life) or fiftyyears from publication if the identity of the author is unknown.2 2

(discussing promulgation of "Regulations on the Implementations of the Interna-tional Copyright Treaties" and "Implementing Rules for the Copyright Law of thePeople's Republic of China" to address gaps between original Copyright Law andBerne Convention). Prior to the amendments, the Copyright Law did not protectcopyright owners in "films, sound recordings, and musical works right to publicperformances . .. ." See id. at 1952 n.79.

18. See CHING CHEONG & CHING HUNG YEE, HANDBOOK ON CHINA'S WTO Ac-CESSION AND ITS IMPACTS 132 (World Scientific 2003) (outlining conformity be-tween China's Copyright Law and TRIPS); see also Heiberg, supra note 6, at 228(mentioning China's amended Copyright Law, which improved its copyright pro-tection by punishing violations more severely and providing broader protection).

19. See Heiberg, supra note 6, at 229 ("[M]any commentators consider WTOmembership to have been a major impetus for improvements in China's IPlegislation.").

20. See Cheng, supra note 17, at 1947 ("While the Berne Convention does notgovern the protection of a work in its country of origin, it requires that the work beprotected without formalities outside its country of origin."). "The countries towhich this Convention applies constitute a Union for the protection of the rightsof authors in their literary and artistic works." Berne Convention for the Protectionof Literary and Artistic Works art. 1, July 24, 1971, available at http://www.wipo.int/treaties/en/ip/berne/trtdocswoOl.html#P82_10336 (last visited Apr. 8,2007) [hereinafter Berne Convention].

21. See Cheng, supra note 17, at 1947 (describing signatories' obligationsunder Berne Convention). Economic rights include "the right to translation, re-production, public performance, and adaptation." Id. at 1947 n.34. "Moral rightsrefer to the right to attribution and the right of integrity." Id. at 1947 n.35.

22. See id. at 1947 (discussing extent of protection required by Berne Conven-tion). Article 7 of the Berne Convention reads:

Term of Protection:1. Generally; 2. For cinematographic works; 3. For anonymous and pseudonymousworks; 4. For photographic works and works of applied art; 5. Starting date ofcomputation; 6. Longer terms; 7. Shorter terms; 8. Applicable law; "comparison" ofterms(1) The term of protection granted by this Convention shall be the life ofthe author and fifty years after his death.-(2) However, in the case of cinematographic works, the countries of theUnion may provide that the term of protection shall expire fifty yearsafter the work has been made available to the public with the consent of

[Vol. 14: p. 399

4




2. TRIPS

In 1994, the General Agreement on Tariffs and Trade("GATT") promulgated TRIPS at the end of the Uruguay Round oftrade negotiations. 23 Drawn from the substantive provisions of theBerne Convention, TRIPS serves as the foundation for IP protec-tion in the international community. 24 All WTO members must

the author, or, failing such an event within fifty years from the making ofsuch a work, fifty years after the making.(3) In the case of anonymous or pseudonymous works, the term of pro-tection granted by this Convention shall expire fifty years after the workhas been lawfully made available to the public. However, when the pseu-donym adopted by the author leaves no doubt as to his identity, the termof protection shall be that provided in paragraph (1). If the author of ananonymous or pseudonymous work discloses his identity during theabove-mentioned period, the term of protection applicable shall be thatprovided in paragraph (1). The countries of the Union shall not be re-quired to protect anonymous or pseudonymous works in respect of whichit is reasonable to presume that their author has been dead for fifty years.(4) It shall be a matter for legislation in the countries of the Union todetermine the term of protection of photographic works and that ofworks of applied art in so far as they are protected as artistic works; how-ever, this term shall last at least until the end of a period of twenty-fiveyears from the making of such a work.(5) The term of protection subsequent to the death of the author and theterms provided by paragraphs (2), (3) and (4) shall run from the date ofdeath or of the event referred to in those paragraphs, but such termsshall always be deemed to begin on the first of January of the year follow-ing the death or such event.(6) The countries of the Union may grant a term of protection in excessof those provided by the preceding paragraphs.(7) Those countries of the Union bound by the Rome Act of this Conven-tion which grant, in their national legislation in force at the time of signa-ture of the present Act, shorter terms of protection than those providedfor in the preceding paragraphs shall have the right to maintain suchterms when ratifying or acceding to the present Act.(8) In any case, the term shall be governed by the legislation of the coun-try where protection is claimed; however, unless the legislation of thatcountry otherwise provides, the term shall not exceed the term fixed inthe country of origin of the work.

Berne Convention, supra note 20, art. 7.23. See Cheng, supra note 17, at 1946 (explaining origin of TRIPS).24. See id. (asserting modern prominence of TRIPS in dialogue on intellectual

property protection). The Berne Convention and other conventions prior to 1970were criticized by developed nations such as the United States and Canada forineffective enforcement provisions. See id. at 1948 n.44. Unlike the Berne Conven-tion, TRIPS extends protection to computer programs and data compilations. Seeid. at 1949. TRIPS also protects neighboring rights, such as "broadcasts, soundrecordings and performance art." Id. at 1949-50. Neighboring rights generally re-fer to the rights of the following: performers in their performances, phonogramsproducers in their phonograms, and broadcasting organizations in their radio andtelevision programs. See id. at 1949 n.54. TRIPS also mandates proper enforce-ment of intellectual property ("IP") rights and sets forth guidelines for disputeresolution. See id. at 1950. Further, VATO members under TRIPS "should accord... most favored-nation treatment to works created by other member countries."

2007] 403

5



404 VILLANOVA SPORTS & ENT. LAw JouNAL [Vol. 14: p. 399

comply with TRIPS. 25 "A key feature of TRIPS is the obligation itplaces on WTO members to adequately and effectively enforce intel-lectual property rights, including copyright (Section III of TRIPS,Articles 41-61)."26 Articles 41 through 61 serve to evaluate a WTOmember's ability to combat copyright piracy. 27

3. China's Copyright Law

China's National People's Congress ("NPC") passed the coun-try's first statute governing copyrights, entitled the Copyright Law,in 1990.28 In addition to recognizing both the economic and moralrights of individuals, the Copyright Law also reaffirmed Beijing's

Id. at 1950-51. Thus, notwithstanding some exceptions, "any advantage, favour,privilege or immunity granted by a [WTO] member [state] to any other countryshall be accorded immediately and unconditionally [to all other WTO memberstates] ." FINAL ACT EMBODYING THE RESULTS OF THE URUGUAY ROUND OF MULTILAT-

ERAL TRADE NEGOTIATIONS, ANNEX 1 C: AGREEMENT ON TRADE-RELATED ASPECTS OF

INTELLECTUAL PROPERTY RIGHTS 322 (1994), http://www.wto.org/english/docs e/legal-e/27-trips.pdf [hereinafter TRIPS Document] (articulating most-favored-na-tion treatment standard under TRIPS).

25. See CHING & CHING, supra note 18, at 125 (discussing why China must com-ply with TRIPS as WTO member nation).

26. INTERNATIONAL INTELLECTUAL PROPERTY ALLIANCE, COPYRIGHT ENFORCE-MENT UNDER THE TRIPS AGREEMENT 1 (2004), http://www.iipa.com/rbi/2004-Octl9_TRIPS.pdf [hereinafter IIPA TRIPS] (distinguishing TRIPS from previousinternational IP agreements such as Berne Convention).

27. See id. at 1-2 (detailing obligations of WTO members under TRIPS). TheTRIPS enforcement standards require a WATO member nation to provide:

(1) effective action against infringements, including expeditious reme-dies to prevent infringements and remedies which constitute a deterrentto further infringements (Article 41.1); (2) procedures that are fair andequitable, are not unnecessarily complicated or costly, and do not entailany unreasonable time limits or unwarranted delays (Article 41.2); (3)transparency in the form of written decisions on the merits, made availa-ble to the parties to a proceeding without undue delay (Article 41.3); (4)adequate civil or administrative procedures and remedies, including theavailability of civil injunctions (Article 44); the disposal or destruction ofpirate goods (Article 46); and the disposal or destruction of materials andimplements the predominant use of which has been in the creation ofthe infringing goods (Article 46); (5) provisional measures, including theavailability of ex pane civil search orders (Article 50); (6) adequate bordermeasures, such as applications to "suspend" the release of infringinggoods at the border (Articles 51 and 52); and the disposal or destructionof infringing goods (Article 59); and (7) adequate criminal procedures,including deterrent penalties (Article 61); the availability of seizure, for-feiture and destruction of infringing goods (Article 61); seizure, forfei-ture and destruction of materials and implements the predominant useof which has been in the commission of the offense (Article 61).

Id. at 2.28. See Priest, supra note 8, at 808. The 1990 Copyright Law was established

"after a decade of intense internal debate over the appropriateness of intellectualproperty in a socialist system . . . ." Id.

6




substantial role in regulating the country's copyright policy.2 9 As aresult, the original Copyright Law did not conform to internationalstandards, particularly in its "broad exceptions for use by govern-ment actors, including radio and television stations."30

In the late 1990s, China's promising economic future and itsdesire to join the WTO, which sets minimum IP standards throughTRIPS, prompted the NPC to significantly amend the CopyrightLaw.3 1 The result was the 2001 Copyright Law, which attempted tosatisfy the TRIPS requirements and address the emerging chal-lenges imposed by new technologies. 32 Most commentators believethe 2001 Copyright Law succeeded in conforming to general inter-national provisions on its face. 33 For example, unlike the 1990 ver-sion which provided for generic economic rights, the new versioncreated thirteen specific categories of economic rights.3 4

29. See id. (noting socialist influence in China's first copyright statute).30. Id. China's weak enforcement of the Copyright Law resulted in U.S.

threats to impose economic sanctions and initiate a trade war during the 1990s.See id. at 809.

31. See id. at 810 (discussing reasons for changes to Copyright Law).32. See id. at 811 (stating aims of 2001 Copyright Law).33. See Priest, supra note 8, at 811 (conveying general consensus on success of

China's copyright statute reforms). But see IIPA, 2006 REPORT, supra note 14, at 111(arguing enforcement procedures under China's Criminal Law have yet to con-form with TRIPS).

34. See Priest, supra note 8, at 811 (distinguishing 1990 and 2001 versions ofCopyright Law). The new economic right categories include "reproduction, distri-bution, rental, exhibition, performance, screening, broadcasting, making cinemat-ographic works, and communication through an information network." Id.Overall, the 2001 Copyright law enumerates seventeen general categories of rights.Copyright Law (promulgated by the Standing Comm. Nat'l Sept. 7, 1990,amended by the Standing Comm. Nat'l People's Cong., Oct. 27, 2001, effectiveOct. 27, 2001) (P.R.C.), translation available at http://www.npc.gov.cn/zgrdw/en-glish/news/newsDetail.jsp?id=2204&articleld=345014. Article 10 of the 2001 Cop-yright Law reads:

Copyright includes the following personal rights and property rights:(1) the right of publication, that is, the right to decide whether to make awork available to the public;(2) the right of authorship, that is, the right to claim authorship in re-spect of, and to have the author's name mentioned in connection with, awork;(3) the right of revision, that is, the right to revise or authorize others torevise a work;(4) the right of integrity, that is, the right to protect a work against distor-tion and mutilation;(5) the right of reproduction, that is, the right to produce one or morecopies of a work by printing, photocopying, lithographing, making asound recording or video recording, duplicating a recording, or duplicat-ing a photographic work, or by other means;(6) the right of distribution, that is, the right to provide the original copyor reproductions of a work to the public by selling or donating;

2007]

7



406 VILLANOVA SPORTS & ENT. LAW JOURNAL [Vol. 14: p. 399

B. China's Failure to Comply with TRIPS

Although China has been a WTO member since 2001, it hasnot yet satisfied the TRIPS requirements on copyright enforce-ment. 35 Because the framework of its current Copyright Law isbased on TRIPS, China is essentially in violation of both its WTO

(7) the right of rental, that is, the fight to authorize others to use tempo-rarily a cinematographic work or a work created by a process analogousto cinematography, or computer software, except where the software it-self is not the essential object of the rental;(8) the right of exhibition, that is, the right to publicly display the origi-nal copy or reproductions of a work of the fine arts or of a photographicwork;(9) the right of performance, that is, the right to publicly perform a work,and to publicly communicate the performance of a work by any means orprocess;(10) the right of presentation, that is, the right to publicly present a workof the fine arts, a photographic work, a cinematographic work, a workcreated by a process analogous to cinematography, or other works, byprojector, slide projector or any other technology or instrument;(11) the right of broadcasting, that is, the fight to broadcast a work ordisseminate it to the public by any wireless means, to communicate thebroadcast of a work to the public by wire or by rebroadcasting, and topublicly communicate the broadcast of a work by loudspeaker or anyother analogous instrument transmitting signs, sounds or images;(12) the right of communication through information network, that is,the fight to make a work available to the public by wire or by wirelessmeans, so that people may have access to the work from a place and at atime individually chosen by them;(13) the right of cinematography, that is, the right to fix an adaptation ofa work in a medium by cinematography or a process analogous tocinematography;(14) the right of adaptation, that is, the right to change a work into a newone with originality;(15) the fight of translation, that is, the right to change the language inwhich the work is written into another language;(16) the right of compilation, that is, the right to compile by selection orarrangement preexisting works or passages therefrom into a new work;and(17) other rights to be enjoyed by copyright owners.

Id.35. See China: Request for Public Comment on Out-of-Cycle Review of the People's Re-

public of China Before the Section 301 Comm. (Statement of Eric H. Smith, President,International Intellectual Property Alliance), 69 Fed. Reg. 74,561 (Dec. 14, 2004)available at http://www.iipa.com/rbc/2005/CHINA%202005_Feb9PRCOCR_Submission.pdf [hereinafter Smith, China] (asserting China's failure to meet itsWTO/TRIPS obligations); see also Stacey H. Wang, Great Olympics, New China: Intel-lectual Property Enforcement Steps Up to the Mark, 27 Loy. L.A. INT'L & COMP. L. REV.291, 291 (2005) (asserting that IP enforcement procedures in post-WTO China arelargely ineffective). China has also failed to comply with TRIPS Article 50. SeeSmith, supra, at 13. Article 50 deals mostly with ex parte civil search orders andworks in conjunction with Article 41. See IIPA TRIPS, supra note 26, at 3 (parsingArticle 41).

8




obligations and its own statutes. 36 In particular, the Chinese arenot observing TRIPS Articles 41 and 61.37

1. Article 41

Matthijs Geuze, former Secretary to the TRIPS Council at theWTO, described six "performance standards" for Article 41,38

which lists the general criteria of IP enforcement by WTO membernations.3 9 The key to the performance standards is the WTO mem-

36. See Yonehara, supra note 8, at 70-71 (demonstrating similarities betweenChina's Copyright Law, Berne Convention, and TRIPS).

37. See Smith, China, supra note 35, at 13 (concluding that China fails to fulfillits WTO/TRIPS enforcement requirements).

38. TRIPS Document, supra note 24, at 338 (setting forth general obligationsto enforce IP rights). Article 41 reads:

1. Members shall ensure that enforcement procedures as specified in thisPart are available under their law so as to permit effective action againstany act of infringement of intellectual property rights covered by thisAgreement, including expeditious remedies to prevent infringementsand remedies which constitute a deterrent to further infringements.These procedures shall be applied in such a manner as to avoid the crea-tion of barriers to legitimate trade and to provide for safeguards againsttheir abuse.2. Procedures concerning the enforcement of intellectual property rightsshall be fair and equitable. They shall not be unnecessarily complicatedor costly, or entail unreasonable time-limits or unwarranted delays.3. Decisions on the merits of a case shall preferably be in writing andreasoned. They shall be made available at least to the parties to the pro-ceeding without undue delay. Decisions on the merits of a case shall bebased only on evidence in respect of which parties were offered the op-portunity to be heard.4. Parties to a proceeding shall have an opportunity for review by a judi-cial authority of final administrative decisions and, subject to jurisdic-tional provisions in a Member's law concerning the importance of a case,of at least the legal aspects of initial judicial decisions on the merits of acase. However, there shall be no obligation to provide an opportunity forreview of acquittals in criminal cases.5. It is understood that this Part does not create any obligation to put inplace a judicial system for the enforcement of intellectual property rightsdistinct from that for the enforcement of law in general, nor does it affectthe capacity of Members to enforce their law in general. Nothing in thisPart creates any obligation with respect to the distribution of resources asbetween enforcement of intellectual property rights and the enforcementof law in general.

Id.39. See IIPA TRIPS, supra note 26, at 2 (suggesting developing countries make

changes based on Geuze's "performance standards"). The six performances stan-dards are:

(1) enforcement procedures to permit effective action against infringe-ment; (2) expeditious remedies to prevent infringements; (3) deterrenceto further infringements; (4) enforcement procedures that are not unrea-sonably complicated; (5) enforcement procedures that are not unreason-ably costly; (6) time limits that do not cause unwarranted delays or arenot unreasonably fast.

2007] 407

9




ber's ability to deter future infringements. 40 A "clear-cut test[ ]" fordetermining whether the member nation satisfies Article 41 iswhether there was a "change over time of the piracy level."'4 1 Nu-merous reports indicate that China has failed this "clear-cut test."42

For example, a 2001 review by the International Intellectual Prop-erty Alliance ("IIPA") found that China's film piracy level in 2000was ninety percent (up from seventy-five percent in 1997). 43 Fiveyears later, China's film piracy level actually increased slightly toninety-three percent.44 The IIPA attributes the high level of piracyto "lack of real deterrence due to low administrative penalties andvirtually nonexistent criminal prosecutions for major acts ofpiracy.

'4 5

40. See id. at 3 (stating most important consideration of Article 41).41. Id. at 3-4 ("One of the most clear-cut tests is the change over time of the

piracy level."). The International Intellectual Property Alliance notes, for exam-ple, that a rise of piracy in countries that already have piracy levels of fifty percentor higher is a clear indication that deterrence measures are ineffective. See id.

42. For a further discussion of China's failure to comply with Article 41, seeinfra notes 43-45 and accompanying text.

43. See INTERNATIONAL INTELLECTUAL PROPERTY ALLIANCE, 2001 SPECIAL 301REPORT: PEOPLE'S REPUBLIC OF CHINA 26 (2001), available at http://www.iipa.com/rbc/2001/2001SPEC301CHINA.pdf [hereinafter IIPA, 2001 REPORT] (comparingestimated trade losses due to piracy from 1995 to 2000 in China). The IIPA, acoalition of six trade associations formed in 1984, has represented U.S. copyright-based industries in efforts to protect copyrighted materials within the internationalcommunity. See Smith, China, supra note 35, at 1. These member associations re-present approximately 1,500 U.S. companies producing and distributing copy-righted materials. See id.

44. See INTERNATIONAL INTELLECTUAL PROPERTY ALLIANCE, 2007 SPECIAL 301REPORT: PEOPLE'S REPUBLIC OF CHINA (PRC) 96 (2007), http://www.iipa.com/rbc/2007/2007SPEC301PRC.pdf [hereinafter IIPA, 2007 REPORT] (comparing esti-mated trade losses due to piracy from 2002 to 2006 in China). The IIPA's method-ology for the 2005 data was "based on the percentage of potential market lost topiracy. Calculations involve revenue losses, legitimate market sizes, and potentiallegitimate markets without piracy." INTERNATIONAL INTELLECTUAL PROPERTY ALLI-ANCE, 2007 SPECIAL 301 REPORT: PEOPLE'S REPUBLIC OF CHINA APPENDIX B, 3(2007), http://www.iipa.com/pdf/2007spec301methodology.pdf (explainingmethodology behind 2005 data). The IIPA's methodology for determining piracydata prior to 2005 was estimated using a variety of different methods. See id. at 3-4.In another film piracy study, which was prepared for the MPAA by LEK Consult-ing, an international strategy consulting firm, the film piracy rate in China wascalculated to be ninety percent in 2005. See LEK, supra note 10, at 6 (comparing2005 country piracy rates). LEK calculated piracy rates for each country based onthe following:

Piracy rates are derived from MPA member company legitimate revenueplus estimated revenue lost to piracy in each market. They are a staticsnapshot of the percentage of the potential market that is lost due topiracy. The piracy rate is based on existing market data and does notincorporate growth if piracy did not exist.

Id. Russia and Thailand each experienced seventy-nine percent. See id.45. IIPA, 2001 REPORT, supra note 43, at 24 (emphasizing China's weak anti-

piracy measures).

10




2. Article 61

Article 61 requires WTO members to provide criminal proce-dures and punishments for willful copyright piracy cases. 46 Specifi-cally, the WTO member must use effective criminal enforcementprocedures against copyright piracy "'on a commercial scale.' "

47

Thus, imprisonment and fines must be significant enough to deterfuture piracy. 48 WTO members must also seize and completely de-stroy infringing goods. 49

China has failed to comply with Article 61 on two grounds.First, China has not provided effective criminal penalties for pi-rates.50 Administrative penalties, rather than judicial sanctions,

46. See IIPA TRIPS, supra note 26, at 4 (parsing Article 61). Article 61 alsopertains to willful trademark violations. See id. "Effective criminal enforcement hastwo major elements: (a) effective searches and seizures of pirate product by thepolice without notice to the infringer (raids), and (b) the existence in statutory lawof deterrent criminal penalties and, in combination with Article 41, their imposi-tion in practice (Article 61)." Id. Article 61 reads:

Members shall provide for criminal procedures and penalties to be ap-plied at least in cases of willful [sic] trademark counterfeiting or copy-right piracy on a commercial scale. Remedies available shall includeimprisonment and/or monetary fines sufficient to provide a deterrent,consistently with the level of penalties applied for crimes of a correspond-ing gravity. In appropriate cases, remedies available shall also include theseizure, forfeiture and destruction of the infringing goods and of anymaterials and implements the predominant use of which has been in thecommission of the offence. Members may provide for criminal proce-dures and penalties to be applied in other cases of infringement of intel-lectual property rights, in particular where they are committed wilfully[sic] and on a commercial scale.

TRIPS Document, supra note 24, at 345.47. IIPA TRIPS, supra note 26, at 4 (noting important stipulation of Article

61). "'[O]n a commercial scale"' implicates an objective standard that encom-passes whether the infringing act has "significant commercial ramifications torightholders." Id. Thus, the standard would not be met if the WTO membermerely criminalized the sale or distribution of pirated products. See id. Instead,the WTO member must also criminalize piracy by legitimate companies. See id.For example, the unlicensed copying of business software within a corporate envi-ronment is also piracy on a commercial scale because such acts will impact thesoftware market. See id. Further, even a nonprofit act, such as uploading softwarefiles onto a website for free downloading, can have "a severe 'commercial' impactof significant 'scale' and therefore such act must be made subject to criminal pen-alties." Id.

48. See id. (noting Article 61 requirement). "The 'deterrent' effect of impris-onment and fines can be objectively determined by piracy levels." Id. Fines are"simply a cost of doing business for the pirate," rather than a deterrent, if they aretoo low. Id.

49. See id. (reasoning that low fines and failure to destroy pirated goods willnot likely reduce piracy levels).

50. See IMPACr OF MOVIE PIRACY ON CHINA, supra note 15, at 50 (noting insig-nificant judicial penalties for piracy).

2007]

11



410 VILLANOVA SPORTS & ENT. LAwJouRNAL [Vol. 14: p. 399

serve as the primary deterrent against copyright piracy.51 The lackof judicial enforcement, which includes the more effective deter-rent of imprisonment, creates a significant problem because admin-istrative enforcements generally involve negligible fines. 52

Second, Articles 217 and 218 of China's Criminal Law do notcomply with Article 61 as they fail to encompass all forms of com-mercial piracy. 53 China is one of few countries that prosecutescopyright infringement only when there is a "profit" purpose. 54

51. See id. at 49 (stating administrative penalties comprised eighty-two percentof copyright violations in 2004). "[A]dministrative punishment includes bans,shutdowns, warnings, fines, suspensions of production and operation, confisca-tions and revocations of business licenses." Id. But judicial penalties, which arerequired under Article 61, make up a far smaller percentage. See id. In 2004,judicial punishments accounted for just one percent of the 9,691 cases accepted.See id. at 50. Another example illustrating Beijing's preference for administrativemeasures was the decision by the Chinese government in March 2006 to take ad-ministrative action against fourteen optical disc ("OD") factories. See IIPA, 2007REPORT, supra note 44, at 100. While some of the plants were closed and otherssuspended, "no criminal cases have been commenced" despite the high pirate pro-duction levels at the factories. Id.

52. See IIPA, 2006 REPORT, supra note 14, at 117-18 (describing ineffective na-ture of administrative enforcements). Because pirate producers know that mostadministrative raids will not be transferred for judicial prosecution, they can oper-ate "in the open without fear of effective enforcement action, much less effectivecriminal enforcement." Id. The lack of judicial enforcement is also responsiblefor the continued presence of "large-scale pirate production" of films by ChineseOD factories. IIPA, 2007 REPORT, supra note 44, at 97. According to the IIPA:

Exports sourced from these factories continue to be seized around theworld. The quality of the pirate product being produced and exported inlarge quantities by Chinese OD plants is some of the best being found byauthorities in other countries. The continued lack of criminal prosecu-tions and the lack of deterrence in administrative enforcement in Chinaensures that piracy rates of physical copyright products continues to beamong the highest in the world, at 85-95% depending on the industrysector and product format (e.g., an estimated 95% of DVDs in China arepirate).

Id.53. See IIPA, 2006 REPORT, supra note 14, at 124 (conveying deficiency in

China's Criminal Law). Articles 217 and 218 of China's Criminal Law pertain topiracy. See id.

54. See id. (noting key stipulation of China's Criminal Law). "China shouldremove the 'purpose of reaping profits' standard since commercial scale piracycan be, and in the digital age often is, engaged in without any purpose of reapingprofit (e.g., on a P2P Internet site where no money is exchanged)." Id. Articles217 and 218 of the Criminal Law read:

Any of the following categories of persons who infringes upon copy-right for the purpose of reaping profits shall, if the amount of illegalgains is relatively huge or other serious circumstances exist, be sentencedto fixed-term imprisonment of not more than three years or criminal de-tention, and concurrently or independently be sentenced to a fine. If theamount of illegal gains is huge or other especially serious circumstancesexist, the offender shall be sentenced to fixed-term imprisonment of notless than three years and not more than seven years, and concurrently besentenced to a fine:

12




Further, China is the only country that sets a minimum thresholdfor criminal liability "calculated based on pirate profits or in-come."55 This loophole allows many commercial scale piracy enti-ties to avoid criminal prosecution. 56

C. Why Film Piracy Flourishes in China

Despite China's official commitments to reduce piracy levels,copyright violations for all IP products have remained virtually un-changed.57 Many commentators have previously discussed theenormity of China's piracy problem. 58 Rather than reiterate thisdiscussion, this Section will instead develop and explain the perti-nent factors behind Chinese film piracy's success.

(1) reproducing and distributing, without the permission of the cop-yright owner, his written works, musical works, cinematic works, televisionworks, video works, computer software and other works;

(2) publishing a book of which another person has the exclusivepublishing right;

(3) reproducing and distributing, without the permission of the pho-nogram or videogram producer, the phonogram or videogram producedby him; or

(4) producing and selling a work of art bearing the forged signatureof another person.

Whoever sells, for the purpose of reaping profits, those which he wellknows are infringing reproductions specified in Article 217 of this Lawshall, if the amount of his illegal gains is huge, be sentenced to fixed-termimprisonment of not more than three years or criminal detention, andconcurrently or independently be sentenced to a fine.

XING FA [Criminal Code] arts. 217-18 (amended by the Standing Comm. Nat'l Peo-ple's Cong., Dec. 25, 1999, effective Dec. 25, 1999) (P.R.C.), translation available athttp://www.chinalaw.gov.cn/jsp/ aloren/disptextjsprecno=1 &&ttlrec=83#10.China is also the only country in the world "requiring more than 'reasonable suspi-cion' that a crime... [is] being committed before commencing an investigation."IIPA, 2007 REPORT, supra note 44, at 100. "Unless China shows an open willingnessto bring criminal cases against major pirates in their country, there is little hopethat levels of piracy can be significantly reduced, despite repeated Chinese govern-ment promises. Id.

55. IIPA, 2006 REPORT, supra note 14, at 124 (illustrating that pirates may onlybe prosecuted "'when the amount of the illicit income is huge'" or "'gains a fairlylarge amount"' of income from piracy).

56. See id. (analyzing effects of unique criminal liability threshold).57. See Smith, China, supra note 35, at 12 (highlighting lack of decline in piracy

levels).58. See Yu, Still Dissatisfied, supra note 8, at 144 (observing that China's piracy

problems are well documented).

2007]

13



412 VILLANOVA SPORTS & ENT. LAW JoURNAL

1. Motivations Behind Chinese Purveyance of Pirated Films

Access,5 9 price,60 and quality6 ' all play a role in why Chineseconsumers willingly contribute to film piracy's success. Any strategydesigned to successfully combat Chinese film piracy must arguablyacknowledge and address these three factors.

a. Chinese Restrictions on Foreign Films

China currently allows only twenty foreign films to be featuredin Chinese theaters each year. 62 In addition, foreign films arebarred from cinemas during holidays and other peak periods(blackout periods). 6 3 So unlike their American counterparts, Chi-nese consumers cannot go to local theaters to watch the latestHollywood blockbusters because of the governmental restrictions. 64

59. For a further discussion of Chinese consumer access to foreign films, seeinfra notes 62-70 and accompanying text.

60. For a further discussion of the economic factor in film piracy, see infranotes 72-73 and accompanying text.

61. For a further discussion of the quality of pirated optical discs, see infranotes 74-85 and accompanying text.

62. See LEK, supra note 10, at 8 (detailing Chinese restrictions on foreignfilms). The twenty foreign films allowed into theaters are imported under a "fullrevenue-sharing" arrangement. See IMPACT OF MOVIE PIRACY ON CHINA, supra note15, at 14 (discussing Chinese foreign film restriction). Additional films may beimported, but they are encumbered by high royalties and duties. See id. In 2003,China imported forty foreign films for theatrical distribution. See id. at 20. "Toavoid the quota, the blackouts and the tiny share of the box-office receipts, U.S.filmmakers can team up with a Chinese production company." Editorial, UnveilingChina's Past, L.A. TIMES, Dec. 21, 2006, available at http://www.latimes.com/news/printedition/asection/la-ed-veil2l dec21,1,425681 .story?coll=la-news-a-section.For example, the makers of The Painted Veil worked with a Chinese joint venturecompany. See id. The partnership allowed The Painted Veil to be regulated as adomestic film:

Doing so gave them the same benefits enjoyed by Chinese filmmakers,including guaranteed access to the fast-growing Chinese theatrical mar-ket. But it also meant that their script would have to be approved by theChinese film bureau, as would the final version of the movie. In otherwords, because the movie producers wanted access to Chinese moviescreens, they allowed communist censors to control content destined tobe seen by audiences around the world.

Id.63. See Audra Ang, 6 U.S. Movie Studios Sue Beijing Shops for Selling Unlicensed

Copies of Movies, ASSOCIATED PRESS, Sept. 13, 2006, http://famulus.msnbc.com/famulusgen/ap09-13-064116.asp?t=APCOM (noting Chinese restrictions on theat-rical releases of foreign films); see also Heiberg, supra note 6, at 236 (explaining"blackout periods" are when Chinese theaters may not show foreign films). In2004, China banned summer blockbusters such as Spider-Man 2, Harry Potter and thePrisoner of Azkaban, and Shrek 2. See id. at 237. China claimed it was initiating a"crackdown on bad influences," though some observers speculated that the black-outs were designed to protect China's own film industry. See id.

64. See Heiberg, supra note 6, at 257 (describing disincentive for piracy wherelegitimate film options are readily available to consumers); see alsoJosh Grossberg,

[Vol. 14: p. 399

14




These restrictions are a tremendous "boon" to film pirates, who es-sentially have a market monopoly on the restricted foreign filmsuntil the legitimate DVD release. 65 As MPAA lawyer Frank Rittmanexplained, the lack of access to legitimate film products naturallymotivates Chinese consumers to pursue the more accessible piratedproducts. 66

As a further constraint, each of the twenty foreign films mustfirst "undergo a lengthy review and censorship process," whichoften means the film will not be released until months after its de-but in other countries. 67 China also imposes both a lengthy review

China Whacks The Departed, E! ONLINE, Jan. 17, 2007, http://www.eonline.com/news/article/index.jsp?uuid=d7428fe3-03d2-4f41-al67-f54e8fa79afl [hereinafterGrossberg, The Departed] (discussing China's decision to block Martin Scorsese'sThe Departed from Chinese theaters). Besides the twenty film quota, Chinese offi-cials sometimes block a film for inappropriate material. See id. China banned theThe Departed from its theaters because of a scene where Beijing's agents boughtadvanced military computer hardware from the Boston mafia. See id. Besides be-ing politically sensitive, the scene also included a remark about China being theU.S.'s main adversary. See id. But seeJosh Grossberg, 007: From China with Love, E!ONLINE, Nov. 16, 2006, http://www.eonline.com/news/article/index.jsp?uuid=el15802d-7ab6-4982-962f-49b6a7474b0f (discussing China's decision to allow CasinoRoyale in Chinese theaters). "Chinese censors have approved the release of CasinoRoyale, the 21st film based on Ian Fleming's famed superspy, marking the first timea James Bond adventure will unspool in mainland theaters." Id. China's censorsgenerally ban Western films that are particularly sexual, violent, or political. See id.While the censors did not ban Casino Royale, the film's theatrical release in Chinawas postponed from November 17, 2006 toJanuary 30, 2007 because of a blackoutperiod. See id.

65. See Ang, supra note 63 ("The delay is a boon to thriving film pirates, whocan flood the market with millions of illegal copies of a foreign movie just daysafter it is released abroad."); see also ERIC H. SMITH, CHINA WTO: COMMENTS RE-

GARDING COPYRIGHT PROTECTION AND SERVICES/MARKET ACCESS IN CHINA IN RE-

SPONSE TO THE REQUEST FOR COMMENTS AND NOTICE OF PUBLIC HEARING

CONCERNING CHINA'S COMPLIANCE WITH WTO COMMITMENTS, 69 FED. REG. 45,369(July 29, 2004), http://www.iipa.com/rbi/2004_Octl2_IlPACHINA.VTOTPSC_Submission-rev.pdf ("[T] o allow in ... 20 films annually under standard commer-cial terms (revenue sharing) essentially provide [s] pirates with a monopoly in theChinese market for the six-month period between theatrical release of a motionpicture and the release of the product in home video formats.").

66. See Ang, supra note 63 (observing reason for Chinese purveyance of pi-rated films). After China banned The Departed from its theaters, Chinese consum-ers were forced to resort to pirated versions of the film. See Grossberg, TheDeparted, supra note 63 ("[G]iven China's booming black market for piratedHollywood DVDs, it's doubtful the ban will prevent mainland residents fromchecking out the crime saga if they really choose to do so."). The Departed, how-ever, was released in Hong Kong and Taiwan theaters. See Release Dates for TheDeparted (2006), http://www.imdb.com/title/tt0407887/releaseinfo (last visitedApr. 8, 2007) (listing release dates for The Departed).

67. Heiberg, supra note 6, at 234 (discussing effects of Chinese censorshipprocess).

2007]

15




process and a ten percent tariff on home video titles.68 These re-strictions in turn encourage the average Chinese consumer to turnto the film piracy industry, which is unaffected by delays, quotas,and tariffs.69 Not surprisingly, the combination of these restrictivefactors has led to a flourishing film piracy industry. 70

b. Chinese Buying Power and the Quality of Pirated Films

While some observers attribute Chinese copyright infringe-ment to Chinese culture,71 the piracy problem may actually reflectsimple economics. 72 The average Chinese worker earning about$100 per month will prefer a one dollar pirated DVD over a legiti-

68. See id. at 235 (comparing restrictions on home video titles to restrictionson theatrical releases). China imports considerably more home videos than theat-rical releases. See id. at 234. "Between 1997 and 2000, China's Ministry of Cultureapproved the import of over 800 home video titles (averaging 200 per year)." Id. at234-35.

69. See id. at 237 (asserting that most Chinese consumers prefer cheaper andnewer tides to waiting for expensive legitimate versions).

70. See id. (noting MPAA's concern regarding slow censorship process). TheMPAA has argued that the "combination of the twenty film quota, the slow censor-ship process, ... the blackout periods, and the tariffs ... [have] created a piracymarket. . . ." Id.

71. SeeYonehara, supra note 8, at 74-78 (discussing how Chinese cultural pre-dispositions conflict with copyright enforcement); see also Peter K. Yu, Piracy,Prejudice, and Perspectives: An Attempt to Use Shakespeare to Reconfigure the U.S.-ChinaIntellectual Property Debate, 19 B.U. INT'L LJ. 1, 16-21 (2001) [hereinafter Yu, Shake-speare] (explaining how IP rights contradict traditional Chinese moral standards).Three cultural aspects particularly influence Chinese attitude towards copyrightinfringement. SeeYonehara, supra note 8, at 75 (specifying how different aspects ofChinese culture influence piracy). First is equality among classes, which has a longtradition in Chinese history. See id. The idea of copyright licensing and royaltiescontradicts the equity notion because it is "viewed as a profit-making venture forauthors." Id. at 76. Second, Chinese culture encourages non-competition. See id.Thus, the Chinese do not react well to threats of trade sanctions over its copyrightviolations. See id. at 76-77. Finally, the Chinese promote and adhere to the idea "ofstate control over the individual." Id. at 77. Consequently, the notion that an ex-pressed idea can be owned by one person, as opposed to the state as a whole,contradicts Chinese ideals. See id. In addition, the Chinese believe the past em-bodies cultural and social values. SeeYu, Shakespeare, supra at 16 (contrasting Con-fucianism with modern property rights). "By encountering the past, one couldunderstand the Way of Heaven, obtain guidance to future behavior, and find outthe ultimate meaning of human existence." Id. at 16-17. IP rights contradict thisChinese ideal because they allow "a significant few to monopolize these neededmaterials, they prevent the vast majority from understanding their life, culture,and society." Id. at 17.

72. See Priest, supra note 8, at 828 (speculating that copyright enforcement inChina will improve once economic conditions improve). "'Most foreigners thinkcopyright infringement has to do with Chinese culture or philosophy, but it's reallyan economic problem. People want to buy the daoban [pirated] VCDs or DVDsbecause they are cheap."' Id. (quoting Chinese intellectual property attorney).

[Vol. 14: p. 399

16




mate DVD costing ten to fifteen dollars.73 Yet while the growingmiddle and upper class in China can afford legitimate products,they might choose to purchase the legitimate products if such prod-ucts "represent a significant upgrade in features and quality ....

Unfortunately for the MPAA studios, the quality of piratedDVDs and VCDs in recent years has increased substantially, to thepoint of being "indistinguishable from the real thing.' 75 Further,the pirated DVDs are often available just days after the film's theat-rical release and long before the home video release. 76 For exam-ple, Star Wars: Episode III - Revenge of the Sith was released in U.S.theaters on May 19, 2005.77 Yet pirated DVDs were available onBeijing streets "a few days later for the typical price of 8 yuan (alittle under one U.S. dollar) ."78

Generally, most pirated DVDs sold soon after the film's theatri-cal release are of poor quality.79 But Star Wars: Episode III - Revengeof the Sith and other blockbuster films may feature improved qual-

73. See id. (commenting on Chinese preference for cheaper products); see alsoYu, Still Dissatisfied, supra note 8, at 153 (discussing how economic factors influenceChinese IP piracy). The Chinese have very limited disposable income. See id.

74. Priest, supra note 8, at 828.

75. Id. at 829 (noting pirated and legitimate DVDs are virtually identical); seealso IMPACt OF MOVIE PIRACY ON CHINA, supra note 15, at 34 (detailing servicesoffered to customers by pirate distributors). "[M] any small retailers provide homedelivery services and even good after-sale services, allowing customers to refund orexchange disks that cannot be read." Id.

76. See Ellen Sander, The Revenge of the SITH and the Rationale of the Pirates,WOMEN OF CHINA, available at http://www.danwei.org/ip-and-law/music-and_movie-pirates-iLyou.php (last visited Mar. 8, 2007) (observing release time of pi-rated DVDs in Beijing); see also Alicia Chang, Pirates Out in Force Capitalizing on'Sith, 'AssOCIATED PRESS, May 23, 2005, http://deseretnews.com/dn/view/0,1249,600136076,00.html (reporting pirated copies of Star Wars: Episode IIIwere availablein Beijing just three days after its U.S. theatrical release).

77. See Release Dates for Star Wars: Episode III - Revenge of the Sith (2005),http://www.imdb.com/title/tt0121766/releaseinfo (last visited Apr. 8, 2007) (list-ing release dates for Star Wars: Episode III - Revenge of the Sith).

78. Sander, supra note 76 (noting film piracy of Star Wars: Episode III film).The Comment author was in Qingdao, Shandong province in China, about a weekafter the U.S. theatrical release of Star Wars: Episode III - Revenge of the Sith where hevisited an audio/video shop selling cheap pirated DVD copies of the Star Wars film.

79. See Yu, Still Dissatisfied, supra note 8, at 154 (explaining why some piratedDVDs are inferior to legitimate copies). Initial pirated copies are usually madeusing a camcorder inside the theater:

If you get a pirated DVD around the time of the theatrical release, thereis a good chance that the movie was taken using a camcorder inside atheater. The sound and visual quality is low, the images are movingaround, and you can hear the conversation or laughter of people sittingnearby.

2007]

17



416 VILLANOVA SPORTS & ENT. LAW JOURNAL [.

ity.s° In the Sith case, the DVD was "slightly blurry but appeared notto have been filmed in a cinema, as are many of China's importedfakes."

8'

The availability of high-quality, inexpensive pirated DVDs andVCDs has compromised the competitive efforts of some MPAA

80. See Chang, supra note 76 (describing initial quality of pirated blockbusterfilms such as Star Wars: Episode Ill); see also Gwynn Guilford, US Movie Giants Swimwith China's Sharks, FIN. ExPREss, Jan. 5, 2007, available at http://www.financialex-press-bd.com/index3.asp?cnd-1/5/2007&section-id=4&newsid=48380&spcl=no(depicting different stages in quality of pirated DVDs). The author of this Com-ment has stayed for periods of two to ten months in four Chinese cities: Beijing(2004), Suzhou, Jiangsu province (2003), Anyang, Henan province (2002-2003)and Qingdao, Shandong province (2004-2005). The author observed the follow-ing characteristics of pirated DVDs: (1) where the film was theatrically released forover six months, the pirated DVD was nearly indistinguishable from a legitimateDVD (with the possible exception of the "special features" option); (2) where thefilm was theatrically released for less than six months and was not a major block-buster, the pirated DVD was either filmed inside a theater using a camcorder or ofpoor quality and contained inaccurate English subtitles; (3) where the film wastheatrically released for three to five months, but was a major blockbuster, thepirated DVD was of excellent quality except for the English subtitles; and (4)where the film was theatrically released for about one week, but was a major block-buster, the pirated DVD was a copy of a stolen screener film (probably intendedfor film festival voters), meaning adequate but not outstanding audio and videoquality (and a periodic warning flash urging the viewer to contact the FBI).

81. Chang, supra note 76 (noting adequate quality of Star Wars DVD despitesome picture clarity issues and incorrect English subtitles); see alsoJAMES KYNGE,

CHINA SHAKES THE WORLD: A TITAN'S RISE AND TROUBLED FUTURE-AND THE CHAL-LENGE FOR AMERICA 57 (Houghton Mifflin Co. 2006) (describing "systematic" oper-ation behind film piracy in China). "Almost every time a Hollywood blockbusterwas cut, it would appear on DVD in China before it had been released in the sameformat in America. To accomplish this, pirate networks had to have operativesunder cover in the film companies that they were ripping off." Id. It is generallybelieved that there are security leaks within the film industry, allowing insiders tosell hard copies of newly released films to pirates. See E-mail from Daniel C.IRChow, Professor of Law, The Ohio State University Michael E. Moritz College ofLaw, to Oliver Ting, J.D. Candidate, 2007, Villanova University School of Law (Jan.9, 2007, 12:42:18 EST) (on file with author) (discussing how Chinese pirates ob-tain original copies of Hollywood films). Most DVD productions occur outside ofmainland China and are then shipped into the country, where they are mass pro-duced and distributed. See id. Professor Chow worked in China for many years"while serving as in-house counsel for a multi-national enterprise with significantbusiness operations in China and serious intellectual property piracy concerns."Daniel C.K. Chow, Why China Does Not Take Commercial Piracy Seriously, 32 OHION.U.L. REv. 203, 203 n.al (2006) [hereinafter Chow, Commercial Piracy]. In addi-tion, Professor Chow participated in:

Numerous raids and seizures of counterfeit products by Chinese govern-ment authorities and later helped to organize the China Anti-Counterfeit-ing Coalition, now called the Quality Brands Protection Committee, theleading industry lobbying group in China on counterfeiting issues. [He]has continued to be actively involved in intellectual property issues inChina.

[Vol. 14: p. 399

18




members in China. 82 For example, Warner Brothers recently de-cided to release the DVD and VCD versions of Superman Returns inChina two months ahead of the United States and European re-lease date.83 The DVD was priced at fourteen yuan, which is justunder two U.S. dollars. 84 Yet given the thriving film piracy industry,Warner Brothers was not surprised when, as the legitimate Super-man Returns DVD debuted in China on September 28th, 2006, a"pristine bootleg version was selling in Beijing for the equivalent of$1.25," or fifty cents less than the legitimate DVD.85

2. Obstacles to a Beijing Crackdown on Film Piracy

Even if Beijing wanted to crack down on film piracy, its influ-ence over film pirates is limited by the growing separation of pow-ers between Beijing and the local governments. 86 In 1979, Beijingdecentralized the federal government, giving more power to local

82. See Superman Battles China's Copyright Pirates, AGENCE FR.-PRESSE, Septi 28,2006, http://www.breitbart.com/news/na/060928105648.06nblk0n.html [herein-after Superman Battles] (reporting on efforts by Warner Brothers to combat Chi-nese piracy).

83. See id. (describing Warner Brothers' strategy against film piracy in China).The DVD version of Superman Returns was released in China on September 28,2006. See Bootlegging Returns, supra note 1 (discussing effort to fight film piracythrough early DVD releases). The Chinese DVD was released roughly threemonths after the film'sJune 21, 2006 theatrical debut in the U.S. See Release Datesfor Superman Returns (2006), http://www.imdb.com/title/tt0348150/releaseinfo(last visited Mar. 8, 2007) (listing worldwide release dates for Superman Returns).By contrast, the U.S. DVD version of Superman Returns was released on November28, 2006, or about five months after the film's U.S. theatrical debut. See BootleggingReturns, supra note 1 (reporting release date for U.S. DVD). The U.S. DVD releaseis more in line with the "four-month 'window' between cinema and DVD releasethat is generally accepted by the industry as the minimum." British Cinemas Pull FoxFilm in DVD Release Row, REUTERS NEWS SERVICE, Feb. 2, 2007, http://news.yahoo.com/s/nm/20070202/filmnm/britainfilm dvd dc -2 (on file with author) (dis-cussing industry standard on DVD releases). The U.S. DVD is priced at $28.98while the Chinese pirated DVD is priced at $1.75. See Bootlegging Returns, supra note1 (illustrating substantial price difference between legitimate and pirated DVDs).

84. See Bootlegging Returns, supra note 1 (stating price of pirated Warner Broth-ers' DVD in China).

85. See id. ("'That doesn't surprise me... [b]ut at least now a consumer therehas a choice of buying a legitimate copy, of higher quality and with all the extras,for not much more."' (quoting Mark Horak, executive vice president and generalmanager of Warner Home Video, Asia Pacific, and Latin America)). WarnerHome Video is the home video unit of Warner Brothers and distributes films toninety countries. See Warner Bros.Online: Company Info, http://www2.warnerbros.com/main/company-info/company-info.html?frompage=sitemap (last vis-ited Apr. 8, 2007) (describing Warner Brothers' home video unit).

86. See Atomised, ECONOMIST, June 3, 2006, at 37 [hereinafter Atomised](describing Beijing's waning control over local authorities). For example, inMarch 2005, Beijing issued directives aimed at cooling the housing market. See id.While Shanghai obediently controlled prices, other major Chinese cities contin-ued to experience rapid housing price growth. See id.

2007]

19




and provincial governments in an effort to ease China's transitionfrom a planned economy to a market economy. 87 Beijing's influ-ence over local officials has declined ever since.88

"The governing body of local jurisdiction is the Local People'sCongress ("LPC") .. .."89 Article 101 of China's Constitution stipu-lates the LPC can elect and dismiss officials at the local level.90

While these officials do report to Beijing, they are directly accounta-ble to the local jurisdiction. 91 Consequently, a local official electedby the LPC "is tempted to place local interests over state policies inmaking political judgments."92 Further, these officials are responsi-ble for enforcing the laws passed by Beijing.93

China's decentralization and the "inevitable consequence of lo-cal protectionism" have serious piracy ramifications because mostIP piracy goods are manufactured in rural communities. 94 Giventhat piracy accounts for a considerable portion of the rural com-merce, local officials may not share the same interests as central

87. See Cheng, supra note 17, at 1985 (explaining how China's decentraliza-tion efforts may contribute to its inability to combat piracy).

88. See id. (discussing inevitable result of China's decentralization). "Today,central government officials no longer dictate the decisions of local officials." Id.

89. See id. (distinguishing local jurisdictions from national government).90. See id. at 1985-86 (indicating that "central authorities do not have absolute

control over personnel management for the LPC"). Article 101 reads:Local people's congresses at their respective levels elect and have thepower to recall governors and deputy governors, or mayors and deputymayors, or heads and deputy heads of counties, districts, townships andtowns.Local people's congresses at or above the county level elect, and have thepower to recall, presidents of people's courts and chief procurators ofpeople's procuratorates at the corresponding level. The election or re-call of chief procurators of people's procuratorates shall be reported tothe chief procurators of the people's procuratorates at the next higherlevel for submission to the standing committees of the people's con-gresses at the corresponding level for approval.

XIAN FA art. 101, § 5 (2004) (P.R.C.), translation available at http://www.npc.gov.cn/zgrdw/english/constitution/constToDetail.jsp?id=full&pages=8 (last visitedApr. 8, 2007).

91. See Cheng, supra note 17, at 1986 (noting conflicting interests of localofficials).

92. Id. at 1986 (analyzing potential conflict of interest for local official). Itwould behoove local officials to intervene in a court judgment against local piracybecause they have to answer to the LPC regarding the judgment's negative effectson local commerce. See id.

93. See Priest, supra note 8, at 822 ("Central authorities promulgate laws andregulations, but local authorities implement those laws and regulations.").

94. Cheng, supra note 17, at 1985-86 (discussing consequences decentraliza-tion entails); see also Priest, supra note 8, at 822 (describing local protectionism'srole in Chinese piracy).

[Vol. 14: p. 399

20




authorities.9 5 So Beijing may pass all the copyright laws desired byHollywood, but the local officials, who answer primarily to the LPC,will be tempted to ignore them. 96

For example, in areas where piracy provides jobs and incometo local residents and revenue to the local governments, local offi-cials are reluctant to intervene, especially because the local adminis-tration can retaliate against them.97 These same officials, however,can ignore Beijing's enforcement orders and not risk politicalrepercussions so long as their areas achieve impressive economicgrowth and minimal social unrest.98 As a result, enforcing laws andregulations promulgated by Beijing become merely discretionary atthis level. 99 Thus, when officials in Beijing order a crackdown onpiracy production sites, a few factories may close but the local offi-cials who condoned such operations are rarely punished. 10 0 Natu-rally, piracy production sites in these local regions are allowed toendure.101

95. See Priest, supra note 8, at 822 (discussing conflict of interest between localand central authorities). In several rural towns, piracy literally supports the entireeconomy. See id. Local governments also can earn substantial rental income fromthe stalls at state-owned markets where pirated goods are sold. See id. at 823. Sincelocal government officials "might have a direct or indirect interest in sustainingthe trade in counterfeit goods," it is unlikely that local officials will "undertake aserious crackdown on their own initiative." Chow, Commercial Piracy, supra note 81,at 222 (indicating need for Beijing to show more initiative in curbing piracy).

96. See Priest, supra note 8, at 822 (describing lack of enforcement motivationin Chinese communities). Beijing's influence over local officials is extremely lim-ited. See id. at 823. While local officials report to superiors within the same over-arching central administration, it is local politicians who control the local"officials' appointments, dismissals, salaries, housing, and other benefits." Id.

97. See id. at 822-23 (describing why many local officials may opt to protectlocal interests).

98. See Atomised, supra note 86, at 37 ("[S] ince the days of Mao each new gen-eration of leaders in Beijing has been increasingly less able to command instantobedience across the country.").

99. SeeYonehara, supra note 8, at 82 (stating that decentralization has resultedin local administrations acquiring governing power independent of Beijing). "Thetraditional Chinese saying, 'The mountains are high, and the Emperor is faraway,"' is applicable to the modern local administrations and their independencefrom Beijing. Id. For example, the local officials must enforce the Copyright Lawat the local level. See id. at 96. "This grant of authority has developed to the pointof creating numerous fiefdoms throughout China, in which a movie studio seekingredress for copyright infringement must negotiate a tortuous maze of individualgovernments, each with their own specific procedures and regulations in dealingwith copyright enforcement." Id.

100. See Atomised, supra note 86, at 38 (describing lack of consequence forfailure to follow Beijing's anti-piracy orders).

101. Lisa Movius, Imitation Nation, SALON, July 8, 2002, http://archive.salon.com/tech/feature/2002/07/08/imitationnation/index.html (describing reluc-tance by local officials to crackdown on piracy).

2007]

21




III. ANALYSIS: COMBATING CHINESE PIRACY

Given the high film piracy rate in China, the U.S. film industrymay have to look for assistance from the WTO 10 2 or pursue individ-ual lawsuits in Chinese courts against the film piracy industry if ithopes to minimize market losses. 103 While these options might pro-vide some short-term relief, they ultimately may prove ineffective oreven backfire. 10 4 Alternatively, the U.S. film industry can petitionChina to improve its IP enforcement mechanisms. 10 5 For an effec-tive approach, the U.S. film industry can highlight piracy's grievousharm to China's own film industry.106

A. WTO Referral

Dan Glickman, CEO of the MPAA, has argued that the "'bestleverage"' for getting China to combat film piracy is the WTO.10 7 AU.S. case before the WTO would likely allege inadequate Chineseenforcement before the WTO's Dispute Settlement Body("DSB"). 1°8 "[T]he WTO dispute resolution identifies treaty non-

102. See Yu, Still Dissatisfied, supra note 8, at 144 (noting debate over whetherto file WTO complaint).

103. See Heiberg, supra note 6, at 247 ("American film companies ... mustalso continue to file lawsuits in Chinese courts and work together directly withChinese authorities to prosecute copyright violations.").

104. For a further discussion of the futility of pursuing a WTO case againstChina or filing individual lawsuits against film pirates, see infra notes 107-69 andaccompanying text.

105. See Heiberg, supra note 6, at 244 ("[E]ffective change will only comefrom a change in Chinese political will.").

106. See IMPACT OF MOVIE PIRACY ON CHINA, supra note 15, at 26-28 (explain-ing piracy's harmful effects on China's film industry).

107. Pete Engardio & Catherine Yang, The Runaway Trade Giant, Bus. WK.,Apr. 24, 2006, at 30, 32 (commenting on U.S. efforts to combat Chinese piracy)."Because of China's WTO membership, the United States can no longer imposeunilateral sanctions on the country concerning the lack of intellectual propertyprotection, as it threatened to do a decade ago. Instead, the United States has toresolve the dispute through the mandatory WTO dispute settlement process." Pe-ter K. Yu, From Pirates to Partners (Episode II): Protecting Intellectual Property in Post-WTO China, 55 AM. U. L. REV. 901, 904 (2006) [hereinafter Yu, Pirates].

108. See Jeffrey Michael Smith, Three Models of Judicial Institutions in Interna-tional Organizations: The European Union, the United Nations, and the World Trade Or-ganization, 10 TULSA J. COMP. & INT'L L. 115, 143-44 (2002-2003) [hereinafterSmith, Three Models] (explaining Dispute Settlement Body's ("DSB") role in WTO).While the DSB technically controls the WTO's dispute resolution functions, it actu-ally "plays a very limited role in the dispute resolution process." Id. at 143. Theintricate WTO dispute resolution begins with a consultation phase where the com-plaining WTO member requests the alleged violating WTO member to negotiate asettlement. See id. at 144. If the consultations fail, the complaining WTO membermay then request for a dispute resolution panel. See id. At the first litigation stage,a panel is established by the Secretariat. See id. Candidates for the panel are drawnfrom government officials or private citizens. See id. The panel, once approved by

[Vol. 14: p. 399

22




compliance, measures the cost of the noncompliance to the com-plaining member, and authorizes the complaining member to takeproportionate action against the violator." 10 9 But according toNicholas R. Lardy, a China trade expert at Washington's Institutefor International Economics, the WTO's lack of transparent en-forcement standards may limit a U.S. case against China. 110 Moreo-ver, should the U.S. case fail, an emboldened China could then"ease the pressure on pirates." 1 '

Professor Peter K. Yu 112 has suggested at least four reasons forwhy the U.S. should not file a formal WTO complaint against China

the parties, serves as the trier of fact and will hand down its decisions (based onparty submissions and other essential information) in the form of a panel report.See id. This panel report is then adopted by the DSB. See id. If the loosing partydisagrees, it can appeal to the WTO's standing Appellate Body. See id. at 145. TheAppellate Body is comprised of seven individuals appointed by the DSB who arenot affiliated with any government. See id. Only three of the members may serveon a single appeal. See id. The appellate panel limits its review of the panel reportto "issues of law" and "legal interpretations." See id. The WTO panels do not cre-ate new law; they simply interpret the law as it is in order to ensure "security andpredictability" for WTO members. See id.

109. Id. at 151 (conceding DSB's inability to enforce judgments); see alsoHeiberg, supra note 6, at 245 ("The DSB exists more to resolve disputes than tomake rulings, and therefore many cases are negotiated between countries for sev-eral years without resolution."). "[T]he WTO panels cannot directly strike downor enact law in a member country. Nor can they order a member country to paymoney or to act in any other way." Smith, Three Models, supra note 107, at 151(indicating limitations of WTO dispute resolution protocol).

110. See Engardio & Yang, supra note 107, at 32 (noting weakness of WTO'senforcement procedure); see also Heiberg, supra note 6, at 244-45 ("While the DSBis an attractive venue for settling some international trade disputes, the potentialtime and burden of proof required to settle disputes through the DSB makes it anuninviting arena in which to solve U.S.-Chinese IP disputes.").

111. Engardio & Yang, supra note 107, at 32 (describing potential backlash offailed WTO case).

112. See MSU Law: Faculty Profile, http://www.law.msu.edu/facultystaff/profile.php?prof=323 (last visited Mar. 8, 2007) (setting forth faculty profile of Pe-ter K. Yu). Professor Yu is a leading expert in international intellectual propertylaw:

Professor Yu is . .. a research fellow of the Center for Studies ofIntellectual Property Rights of Zhongnan University of Economics andLaw in Wuhan, China, and a former research associate of the Programmein Comparative Media Law & Policy at the Centre for Socio-Legal Studies,University of Oxford ....

Prior to joining Michigan State University, he was an acting assistantprofessor of law, the executive director of the nationally-ranked Intellec-tual Property Law Program, and the deputy director of the Howard M.Squadron Program in Law, Media & Society at Benjamin N. CardozoSchool of Law, Yeshiva University, where he taught immediately after lawschool graduation.

2007]

23



422 VILLANOVA SPORTS & ENT. LAw JouRNAL [Vol. 14: p. 399

with the DSB. u 3 Like Lardy, ProfessorYu first noted that, while theWTO requires each member state to provide effective IP enforce-ment, it does not properly define those terms.11 4 Further, even ifthe DSB panel created an empirical standard for "effective enforce-ment," the U.S. may ultimately lack sufficient evidence.' 15 Manysmall and midsized U.S. companies are generally uncooperative inproviding piracy data to the United States Trade Representative("USTR") .116 These companies fear that disclosing information willadversely affect their hard-earned guanxi (personal connections) inChina and may lead to political and business reprisals. 117 Ratherthan get involved, these firms prefer to remain on the sidelines.118

This way, should the U.S. case fail, they will "have demonstratedloyalty to their Chinese connections throughout the process."1 19

113. See Yu, Still Dissatisfied, supra note 8, at 144 (asserting futility of DSBroute). For a detailed discussion of the problems of a U.S. WTO case againstChina, see Yu, Pirates, supra note 104, at 927-46 (arguing five reasons why U.S.should not pursue WTO case against China). The U.S. has already joined theEuropean Union and Canada in asking the WTO to "rule in a dispute with Chinaover import tariffs on auto parts.... " US, Canada Join EU in Hauling China to WFOOver Auto Dispute, AGENCE FR.-PRESSE, Sept. 15, 2006, http://asia.news.yahoo.com/060915/afp/060915152236eco.html (reporting WTO case against China). U.S.Trade Representative ("USTR") Susan Schwab has charged China with imposingrestrictions that "unfairly discriminate" against U.S. auto parts and discourage au-tomobile manufactures from using imported auto parts in vehicle assembly. See id.(highlighting accusations). "We believe that these actions are inconsistent withChina's WTO obligations and are acting accordingly." Id. (quoting USTRSchwab). The U.S. has since threatened further WTO action against China. See USThreatens New WTO Action Against China, AGENCE FR.-PRESSE, Oct. 13, 2006, http://www.forbes.com/home/feeds/afx/2006/10/13/afx3090739.html (focusing onU.S. consideration of future WTO cases against China over copyright issues andforeign investment). In comments to major US investors in China, USTR Schwabhighlighted both IP rights abuses and Chinese subsidies for domestic industries.See id. While noting that utilizing the WTO is not a "hostile act," USTR Schwab didindicate that China is on a "dangerous" track and could spark new WTO disputes.See id.

114. See Yu, Still Dissatisfied, supra note 8, at 145 (noting lack of transparency).115. See id. (describing potential obstacle to WTO case against China).

116. See id. (explaining reason for insufficient evidence).

117. See id. (citing reason for reluctance to disclose information); see also En-gardio & Yang, supra note 107, at 32 (discussing problem where "many U.S.software companies have been unwilling to gather and supply the hard dataneeded to mount a successful case"). Many U.S. companies do not want to be seenas cooperating with the U.S. government in a WTO case against China becausethey fear retaliation and also because they doubt a successful WTO ruling will"solve anything, given China's weak rule of law." Id.

118. SeeYu, Still Dissatisfied, supra note 8, at 145 (stating position of many U.S.companies). They "find it wise to free ride on the enforcement efforts of theircompetitors and partners." Id.

119. Id. (emphasizing importance of cordial relationship with Chinese offi-cials and companies).

24




Second, even if the U.S. could collect the necessary data, mostprevious WTO cases involve deficiencies in a WTO member's laws,rather than deficiencies in their enforcement. 120 A U.S. challengeagainst China based on nonimplementation grounds would proba-bly prove unsuccessful, for most of China's copyright laws are nowin conformity with TRIPS.121 If the U.S. chose instead to challengeon nonenforcement grounds, TRIPS might even side with China. 122

Professor Yu argues that, "[u]nder article 41(5) of the TRIPSAgreement, a WTO member state is not required to devote moreresources to intellectual property enforcement than to other areasof law enforcement. '" 123 Thus, if China can show its piracy problemis not worse than another enforcement area, such as tax collection,China would likely prevail. 124 Given that TRIPS does not requirecountries to prioritize IP protection ahead of other enforcementareas, China merely needs to show that its IP enforcement is on parwith other enforcement areas. 125

Third, the U.S. is not invincible in the WTO dispute settlementprocess. 126 For example, Antigua and Barbuda recently challengedand prevailed against U.S. gambling laws. 127 If tiny Caribbean is-lands are successful in claims against the U.S., one can "only imag-

120. See id. (pointing out "structural challenges" related to WTO IP DSBcase). The closest WTO precedents involving enforcement were the U.S. casesagainst Greece and the European Communities, where the U.S. accused Greece ofnot effectively enforcing IP rights and thereby violating articles 41 and 61 ofTRIPS. See id. at 145-46. "The cases were eventually settled." Id. at 146.

121. See id. at 146 (hypothesizing Chinese response). "In the wake of WTOaccession, China revamped its copyright, patent, and trademark laws while intro-ducing new implementing regulations, administrative measures, and judicial inter-pretations." Id.

122. See id. (arguing futility of challenging China on nonenforcementgrounds). Article 41(5) is a potential barrier to a WTO case against China basedon nonenforcement grounds. See id. Article 41(5) reads:

5. It is understood that this Part does not create any obligation to put inplace ajudicial system for the enforcement of intellectual property rightsdistinct from that for the enforcement of law in general, nor does it affectthe capacity of Members to enforce their law in general. Nothing in thisPart creates any obligation with respect to the distribution of resources asbetween enforcement of intellectual property rights and the enforcementof law in general.

TRIPS Document, supra note 24, at 338.123. Yu, Still Dissatisfied, supra note 8, at 146 (describing limitations of Article

41(5)).124. See id. (theorizing WTO case outcome).125. See id. (explaining hypothetical WTO case outcome).126. See id. at 147 ("Third, the WTO dispute settlement process does not guar-

antee victory for the United States.").127. See id. (noting successes of Caribbean islands in WTO cases against U.S.).

2007]

25




ine what it would be like when an emerging trading power likeChina decides to face off with the United States."'128

Finally, a formal WNTO complaint will likely strain China's rela-tionship with the U.S. 12 9 In particular, a poorly argued WvTO caseagainst China could ultimately backfire on the entire internationalcommunity. 130 China is still a fledgling WTO member and requiresproper guidance to become a respectable member of the interna-tional trading body.' 3 ' Provoking China with WNTO complaintsearly in this process will delay its development. 13 2

B. Lawsuits Against Chinese Retailers

The MPA, on behalf of several U.S. movie studios, filed civillawsuits in China on September 13, 2006 alleging copyright in-fringement against two Beijing retail stores that sold pirated ver-sions of The 40-Year-Old Virgin, The Incredibles, Mr. and Mrs. Smith,War of the Worlds, and other Hollywood films. 133 The MPA studiosdemanded damages ($7,500 per title), an order for the Beijingshops to cease sales of pirated films, and an apology. 34 Roughlythree months later, the Beijing No. 2 Intermediate People's Courtruled in favor of the MPA studios against one of the stores, order-ing Yu Hao Qing DVD store to stop selling pirated films and pay afine of $20,100.135

128. Yu, Still Dissatisfied, supra note 8, at 147.129. SeeYu, Pirates, supra note 106, at 944 (warning against filing WTO com-

plaint against China).130. See Yu, Still Dissatisfied, supra note 8, at 148 (noting potential effects of

WTO case against China).131. See id. (discussing how China is currently undergoing transition to full

compliance with WTO rules).132. See id. ("It is, therefore, important that the U.S. administration be patient

and provide guidance as China learns to become a respectable member of theinternational trading body.").

133. See Ang, supra note 63 (describing MPA studios' lawsuit against Chineseretailers). The lawsuits were filed in the Beijing No. 1 and No. 2 IntermediatePeople's Courts:

The suits were filed on behalf of Sony Corp.'s Columbia Pictures In-dustries Inc.; The Walt Disney Co.'s Disney Enterprises Inc.; Viacom Inc.'sParamount Pictures Corp.; News Corp.'s Twentieth Century Fox FilmCorp.; Time Warner Inc.'s Warner Bros. Entertainment Inc. and Univer-sal City Studios LLLP, which is part of NBC Universal, which in turn is 80percent owned by General Electric Co. and 20 percent by Vivendi SA, theFrench media and telecommunications conglomerate.

Id.134. See id. (describing civil claims made by MPAA studios).135. See Scott McDonald, 5 U.S. Film Studios Win Piracy Case, ASSOCIATED PRESS,

Dec. 19, 2006, available at http://www.mercurynews.com/mld/realcities/en-tertainment/movies/16275003.htm [hereinafter McDonald, Piracy Case] (report-ing outcome of MPA lawsuit against Chinese DVD store). The guilty verdict

[Vol. 14: p. 399

26




The MPA studios may have accomplished two things throughthe judicial ruling: (1) punish the actual violators while recoveringsome monetary damages, and (2) increase Chinese awareness ofcopyrights. 13 6 But the overall impact of the judgment was probablyinconsequential to the thriving film piracy industry.137

1. Distinguishing Between Distributors and Suppliers

The MPA studios recently secured a judgment against a distrib-uting retailer in Beijing, the prominent and urban capital of China,but the primary suppliers of film piracy are located in "rural com-munities, towns, and cities of all sizes across China . *.".."138 Theserural-based suppliers are the driving force behind all sorts of IPpiracy in China including film piracy.139 Merely targeting the ur-ban retailers will not eliminate the actual sources of film piracy,which generally operate out in the countryside. 140 Moreover, se-lecting a few major retailers will do little to curb piracy film distribu-tion.' 4 ' There are many DVD and VCD shops in China and evenmore street vendors. 142 In fact, good quality pirated DVDs of the

against Yu Hao Qing DVD store and Beijing Century Hai Hong Trading Co. Ltd,its parent company, was issued on December 19, 2006. See id. The MPA suit hadoriginally sought $247,000 in damages. See Superman Battles, supra note 82 (describ-ing MPA suit against DVD retailers).

136. See Heiberg, supra note 6, at 247 (urging U.S. film studios to file lawsuitsin Chinese courts).

137. See McDonald, Piracy Case, supra note 135 (stressing fact that Beijing isstill "awash" in pirated films despite recent MPA court victory).

138. Priest, supra note 8, at 822 (highlighting role of rural communities,towns, and cities in Chinese piracy trade); McDonald, Piracy Case, supra note 135(discussing MPA court victory).

139. See Priest, supra note 8, at 822 (questioning commitment of local authori-ties to enforcing copyright laws).

140. See Chow, Commercial Piracy, supra note 81, at 220 (indicating hundreds ofsmall Chinese towns that are involved in counterfeiting).

141. See Guilford, supra note 80 (citing wide availability of counterfeit DVDs asone reason for film piracy's success in China).

142. See Henry Blodget, How to Solve China's Piracy Problem, SLATE, Apr. 12,2005, http://www.slate.com/id/2116629 (commenting on China's DVD piracy in-dustry). China's piracy industry is so ingrained that even the pirates are com-plaining. See id. "Chinese storekeepers who sell fake DVDs for 10 yuan gripe aboutstreet vendors selling them for seven. And the street vendors complain about com-petitors offering two-for-one specials." Id. In Shanghai, it appears that "[o]n everypedestrian overpass, subway stairwell or crowded street, there is at least one man,invariably middle-aged with greasy hair, opening a briefcase to reveal a selection ofimitation name-brand perfumes." Movius, supra note 101 (describing ubiquitouspiracy situation in Shanghai). "Next to him, resting on a folding chair, is the inevi-table cardboard box crammed with pirated discs." Id.

2007]

27



426 VILLANOVA SPORTS & ENT. LAw JOURNAL

blockbuster film Borat were available for sale in Beijing during thesame week of the judicial ruling against Yu Hao Qing DVD store. 143

2. Problems with Targeting Piracy Suppliers

Alternatively, the MPA studios could sue the film pirates them-selves. 144 While this would actually affect the piracy source, thecheap and simple method of burning DVDs "allows pirates to set upnew factories almost overnight, immediately after one is shutdown. '14 5 Complicating matters, pirates have become extremelydeft at avoiding detection. 146 Unlike the more visible and accessi-ble Beijing video retailers, film pirates continue to find innovativeways to avoid authorities.' 47 First, film piracy operations can func-tion underground in tiny rooms with as few as two or three peo-ple. 148 The production sites are usually concealed or disguised as"chicken farms" or other covers. 149 Some of these sites install airpumps to discharge production fumes that could potentially blowtheir covers. 150 In addition, pirates set up production sites in re-mote and inaccessible places like abandoned gas stations and for-mer military facilities.'51

Distribution channels are also concealed from authorities. 52

Often packages containing pirated discs are disguised as eggs, sea-food, stationary, and other covers, and they change hands severaltimes before reaching their retail destination.' 53 "With a single per-son to contact and different people and vehicles involved in the

143. See McDonald, Piracy Case, supra note 135 (reporting availability of pi-rated DVDs in Beijing during week of December 18, 2006).

144. For a further discussion on U.S. film studios filing lawsuits against suppli-ers of film piracy, see infra notes 155-69 and accompanying text.

145. Heiberg, supra note 6, at 242 (describing ease of DVD piracy opera-tions). The light weight and small size of DVDs allow for easy transportationthroughout the country. See id.

146. See IMPACT OF MOVIE PIRACY ON CHINA, supra note 15, at 33 (noting cam-ouflage tactics used to evade anti-piracy efforts).

147. See id. ("To counter anti-piracy efforts, pirated product makers continu-ally innovate.").

148. See id. (describing working conditions). The workers stay in the under-ground factory for months as their meals literally are sent in from the outside. Seeid.

149. See id. (noting camouflage technique employed by pirates).150. See id. (noting plants "discharge production fumes in farm fields through

hidden pipelines up to several hundred meters long").151. See IMPAcT OF MOVIE PIRACY ON CHINA, supra note 15, at 33 ("Caves, aban-

doned gas stations and outdated military facilities all can be used as hidingplaces.").

152. See id. at 34 (discussing additional evasive methods of pirates).153. See id. (describing techniques for disguising pirated films during trans-

portation). Retail destinations of pirated films usually involve two types: regular

[Vol. 14: p. 399

28




transportation process at different stages, the drivers normally haveno idea what they are transporting."1 54

3. Judicial Incompetence in Rural Areas

Even if the MPAA studios could successfully locate and pro-ceed with legal action against film pirates, the studios' efforts wouldlikely be stifled by the ill-prepared rural judiciary system. 155 Manypiracy production sites are located in rural locales, meaning a casewould be tried initially in the "local county-level court of the in-fringer's domicile."'156 While many lawyers and judges in the majorChinese cities have improved their understanding of IP matters,poor legal training is still pervasive in the rural areas. 157 Localjudges simply cannot handle complicated film piracy cases.' 58

If the MPAA studios do, however, manage to obtain a verdict ina local civil court, the verdict may be unenforceable. 159 Enforcing ajudgment is difficult because the judgments are rarely conclu-sive.1 60 There are many ways to relitigate a case and, "[f] or up totwo years after ajudgment, any party can petition for retrial" on thebasis of virtually "any reason that would also be grounds for anappeal."' 6'

Perhaps of greater concern to the MPAA studios seeking judi-cial enforcement and compensation is local protectionism. 62 This

audio/video stores and itinerant peddlers. See id. The former sell both legitimateand pirated films while the latter sell pirated films throughout the country. See id.

154. Id. "Throughout the whole process, the 'bosses' hide behind the cur-tain, with their subordinates dealing with the drivers." Id.

155. See Priest, supra note 8, at 827 (noting that poor legal training has tradi-tionally been a problem in the Chinese countryside).

156. Id. (describing procedure for initial trial against film pirates).157. See id. at 826-27 (distinguishing between rural and urban legal communi-

ties in China).158. See id. at 827 (noting that local judges lack experience and understand-

ing of IP law to hear piracy cases).159. See Lindsay Wilson, Investors Beware: The WTO Will Not Cure All Ills with

China, 2003 COLUM. Bus. L. REv. 1007, 1020-21 (2003) (explaining difficulty ofenforcingjudgments in Chinese legal system). A verdict might include an "award,damages, or injunction." Id. at 1021. "There are no hard statistics regarding howmany judgments go unenforced, but clearly this is a major shortfall in the Chineserule of law." Id.

160. See id. (indicating reason for enforcement problems).161. Id. (discussing obstacles to enforcing judicial proceedings). Reasons for

which a party may petition for a retrial include "new evidence, insufficient evi-dence, corruption, procedural irregularity, [and] misapplication of law .... " Id.

162. See Wang, supra note 35, at 297-98 ("[C]ourt judgments are generallyhard to enforce due to protectionist discretion in local enforcement."). Further,judicial judgments are not bound by stare decisis so there is no uniformity in theapplication of law. See id. at 298.

2007]

29




problem starts with the judges. 163 Because judges at all levels areappointed by the particular administration at the correspondinglevel, local judges are appointed by the LPC.164 The local adminis-tration therefore controls the judge's "salary, housing, freedom ofmovement about the country, reproductive rights, professional per-quisites and continued employment .... ,,165 These judges, like thepreviously mentioned local officials, are heavily influenced by thelocal administration.

166

Besides compromising the judiciary, local governments alsocan enlist the help of the local police and procuracy to dodge judg-ments. 167 Finally, as previously discussed, local officials, includingjudges and other enforcement officials, are strongly influenced bylocal interests. 168 "Faced with the choice of disobeying a directivefrom a higher level unit that is powerless to sanction disobedienceand a directive from the local mayor who can terminate employ-ment or arrange an undesirable job transfer or salary cut, many lo-cal enforcement officials opt to protect local interests."'169

C. Highlighting the Adverse Effects of Film Piracy on China'sFilm Industry and Economy

Rather than rely on the WTO or litigation, the U.S. film indus-try can try convincing Beijing that confronting film piracy would bein its best interests. Here, the MPAA studios can point out that filmpiracy is detrimental both to the emerging Chinese film industryand to China's overall economy.' 70 While the immediate effectsmay be minimal at best, Hollywood stands to gain far more onceBeijing becomes equally committed to combating film piracy. 171

Further, this approach is less likely to provoke the Chinese. 72

163. See Wilson, supra note 159, at 1015 (discussing judicial appointments).164. See id. (explaining judicial appointment structure).165. Id. (expressing LPC's influence over judiciary).166. See id. (asserting strong local influence over judiciary).167. See id. at 1022 (noting tactic by local governments to avoid judicial

enforcement).168. See Priest, supra note 8, at 823 (describing local control over officials).169. Daniel C.K. Chow, Counterfeiting in the People's Republic of China, 78 WAsH.

U. L.Q. 1, 29-30 (2000).170. See IMPACT OF MOVIE PIRACY ON CHINA, supra note 15, at 2 (arguing that

pirated foreign films in China's market greatly exceeds legitimate domestic films).171. See Yonehara, supra note 8, at 80 (discussing how China will seriously

protect IP rights after Beijing realizes that "it will be in their best economic inter-ests to do so").

172. SeeYu, Pirates, supra note 106, at 944 ("Because the [U.S. and China] hadbeen adversaries in only two [WTO] cases, 'initiation of a complaint would be

[Vol. 14: p. 399

30




1. Film Piracy's Negative Impact on the Chinese Film Industry

According to a 2006 report by LEK Consulting, Chinese filmpiracy cost the worldwide film industry $2.7 billion in 2005.173 Yet$1.5 billion of the piracy cost was attributed to China's film indus-try.174 By comparison, the U.S. film industry lost an estimated $565million. 175 "In terms of who's losing the most here in China, it'snot the MPA[']s member companies. It's the local industry," con-cluded Mike Ellis, the head of the MPA's Asia Pacific division. 176

While the piracy of Chinese films is partly responsible for thestaggering local industry losses, pirated Hollywood films ironicallymay play a greater role. 177 Because most foreign films in China arelow-priced pirated optical discs, Chinese consumers probably wouldchoose the cheaper Hollywood films over paying substantially moreto watch a Chinese film in a theater.178 Not surprisingly, accordingto the Study of the Impact of Movie Piracy on China's Economy ("2006Study"), ajoint 2006 report on the impact of film piracy on China'seconomy, fifty percent of Chinese film industry respondents believe"the larger the market for pirated movies, the worse their own oper-ating results.' 79 The Chinese companies that reported the most

something of a slap in the face."' (quoting William J. Davey, Dispute Settlement inGATT, 11 Fof, DH w m INT'L. LJ. 51, 71 (1987))).

173. See China Piracy Costs, supra note 10 (stating piracy cost to film makers);LEK, supra note 10, at 10 (charting motion picture consumer spending loss bycountry). The $2.7 billion China figure includes losses reflected by "producers,distributors, theaters, video stores and pay-per-view providers" in the U.S. andaround the world. Id. According to the LEK report, $1.63 billion of the $2.7 bil-lion piracy cost was attributed to pirated video discs while $1.04 billion was attrib-uted to the internet. See China Piracy Costs, supra note 10 (distinguishing betweenhard copy and internet piracy).

174. See China Piracy Costs, supra note 10 (highlighting Chinese film industry'sconsumer spending loss).

175. See id. (highlighting U.S. film industry's consumer spending loss).176. Id. (emphasizing film piracy's significant harm towards China's film

industry).177. See Heiberg, supra note 6, at 256 (discussing accessibility of cheap pirated

DVDs).178. Cf at id. ("Rather than paying an exorbitant amount of money to buy

one ticket ... in a theater, instead the cheap prices of pirated DVDs allow Chinesecitizens to buy, own, watch . . . foreign movies."). Despite price cuts at Shanghaitheaters, an average movie ticket still costs about fifty to sixty yuan, which is farmore expensive than the widely available five to eight yuan pirated DVDs. SeeKathy Fong, Cinemas Dying Out Due to Piracy, THE STAR ONLINE, Dec. 24, 2006,http://thestar.com.my/news/story.asp?file=/2006/1 2/24/asia/16350881&sec=asia (explaining Chinese preference for pirated DVDs over cinemas).

179. IMPACT OF MOVIE PIRAcv ON CHINA, supra note 15, at 26 (mentioningsurvey results conducted by Center For American Economic Studies under the In-stitute of World Economics & Politics and Chinese Academy of Social Sciences).The other fifty percent of Chinese industry respondents actually maintained thatthe size of the pirated film market had no effect on their operating results. See id.

2007] 429

31




damage are private film companies that employ the majority of eliteChinese directors and famous actors and actresses. 180

Further, the 2006 Study found that seventy-five percent of in-dustry respondents believe piracy has reduced both their box officerevenues and royalties.181 About two-thirds of industry respondentsalso believe that piracy has hampered the overall development ofChina's film industry. 182 By contrast, just five percent thought thatpiracy has no impact on China's movie industry. 183

2. Film Piracy's Negative Impact on China's Economy

As part of an illegal industry, film pirates pay no taxes. 184 Thistax evasion is directly felt by the state treasury. 185 More impor-tantly, though, film piracy also harms the economy by "squeezing"related legitimate industries such as the aforementioned privatefilm companies. 186 In fact, over sixty-two percent of industry re-spondents believe film piracy "has significantly reduced the govern-ment's tax revenues .... "187

Yet over eighteen percent of industry respondents interviewedclaimed film piracy has increased local government tax revenues.188

They argue that film piracy is responsible for sustaining the econo-mies of local cities and creating local jobs.189 These employmentopportunities generally are filled by a "large number of people atthe bottom of ... society" such as farmers and unemployed work-

These companies, however, tend to be state-owned film enterprises and do not relyon profitability and competitiveness like private Chinese film companies. See id. Infact, most state-owned film companies no longer produce films, relying instead onrent from "plant and equipment, as well as administration fees levied on actors."Id. In China, actors and actresses under contract to state-owned film companiesmust pay a fee whenever they work for a private film company. See id. n.14. Be-cause most state-owned film companies no longer produce films, they encouragetheir actors and actresses to work for the private film companies. See id.

180. See id. at 26 (highlighting piracy's effect on Chinese films featuring fa-mous directors and actors).

181. See id. at 27 (summarizing effects of piracy on Chinese film profits).182. See id. at 28 (reporting sixty-five percent of Chinese movie companies

believe piracy has hurt China's film industry).183. See id. (noting small percentage of Chinese movie companies believe

piracy has negligible impact on domestic film industry).184. See IMPACT OF MOVIE PIRACY ON CHINA, supra note 15, at 30 (asserting film

piracy's tax evasion).185. See id. (describing effect of film piracy's tax evasion on state treasury).186. See id. (noting consequences of film piracy's effect on legitimate

industries).187. Id.188. See id. (stating minority view held by Chinese film companies surveyed).189. See IMPACT OF MOVIE PIRACY ON CHINA, supra note 15, at 30 (noting film

piracy's role in local economy from perspective of some enterprises).

[Vol. 14: p. 399

32




ers. 190 In fact, some Chinese towns rely entirely on the productionof pirated goods including films. 191

Still, while film piracy may have caused an increase in illegalemployment, there has not been a corresponding rise in the em-ployment level of China's legitimate film industry.1 92 Of the indus-try respondents interviewed in the 2006 Study, ninety-two percentbelieve that piracy has made a small or negligent impact on the filmindustry's overall employment level.193 Some of these companiesreasoned that film piracy makes up for eliminating some legitimatejobs by creating illegal jobs. 194

While the 2006 Study did acknowledge some film piracy bene-fits, the overall impact of film piracy on China's economy seems tofall into two categories: short-term benefits and long-term losses.195

In the short-term, film piracy benefits Chinese consumers by pro-viding cheaper DVDs and contributing to lowered price levels oflegitimate products.196 Because many pirated movies are foreign,their low-cost accessibility can help "broaden the cultural horizonsof consumers in China."'197 Finally, film piracy stimulated China'sVCD and DVD players industry.198

But the 2006 Study also concluded that film piracy will lead tolong-term harm. 199 Many Chinese movie producers stated that filmpiracy greatly lowers their profits.2 00 "To movie producers, piracyhas undermined the capability of China's movie industry to obtainmarket returns and fundamentally hindered the development ofthe whole movie industry .... ,,201 For example, the 2004 Chinesefilm Baober in Love made six million yuan in its debut but less thantwo million yuan the day after, when pirated DVDs became availa-

190. Id. at 29 (describing film piracy's positive influence on poor workers).191. See Lara, supra note 5, at 353 n.71 (discussing why crackdown on film

piracy industry would eliminate jobs).192. IMPACT OF MOVIE PIRACY ON CHINA, supra note 15, at 29 (reporting major-

ity view on overall employment levels).193. See id. (stating consensus of Chinese film makers surveyed).194. See id. (" [P]ointing out that piracy squeezes some legal jobs while in-

creasing some illegal ones.").195. See id. at 31-32 (summarizing 2006 Study).196. See id. (noting this is what consumers want).197. IMPACT OF MOVIE PIRACv ON CHINA, supra note 15, at 32 (discussing film

piracy's impact on cross-cultural understanding).198. See id. ("Pirated movies greatly boosted the growth of VCD and DVD

players industry.").199. See id. (outlining significant long-term losses to China's economy and

film industry).200. See id. at 28 (indicating concerns of Chinese movie producers).201. Id. at 32.

2007]

33




ble.20 2 Piracy has also caused China to suffer decreases in tax reve-nues and increases in anti-piracy enforcement costs. 20 3 Moretroubling, perhaps, is the ensuing damage to the country's interna-tional reputation. 20 4 China has already been labeled as the "piracycapital of the world."20 5 Such a label will hurt the country's image,

202. See IMPACT OF MOVIE PIRACY ON CHINA, supra note 15, at 35 (citing exam-ple of Chinese film affected by film piracy). In China, "sidewalk vendors sell unli-censed DVDs of Chinese movies for as little as 50 cents." Joe McDonald, PiracyHurting China's Own Industries, July 1, 2006, ASSOCIATED PRESS, http://abcnews.go.com/Business/wireStory?id=2144321&page=l [hereinafter McDonald, Piracy Hurt-ing] (noting accessibility of pirated Chinese films in China). While in China, theauthor of this Comment encountered pirated versions of the Chinese blockbusterfilms Hero and House of Flying Daggers, and classic Chinese films such as Farewell MyConcubine and Raise the Red Lantern.

203. See IMPACT OF MOVIE PIRACY ON CHINA, supra note 15, at 32 (noting filmpiracy's effects on government's budget).

204. See id. (arguing film piracy's negative impact on China's internationalreputation). The U.S. is contemplating a possible WTO case "against China forfailing to stop widespread piracy and counterfeiting of American goods." USTRAide Warns of More WTO Cases Against China, REu-rTERs NEWS SERVICE, Jan. 17, 2007,http://ca.news.yahoo.com/s/reuters/070117/us/politics-usa chinatrade dc 3(discussing U.S. frustration with China and its piracy reputation). But see StanleyRosen, Hollywood and China: Lost in Translation, L.A. TIMEs, June 18, 2006, availableat http://www.latimes.com/news/opinion/commentary/la-op-rosenl8jun18%2C0%2C7142667.story?coll=la-news-comment-opinions (explaining why Hollywoodcontinues to expand in China despite film piracy and weak 2004 box office returnsthere). Reasons for why Hollywood remains committed to China's market include:

First, with the rapid expansion of the economy and the rise of a middleclass with disposable income, the vast potential of the Chinese marketcontinues to beckon.Second, Hollywood studios view China as an increasingly participatorystakeholder in the international system, one that, given time, will begin tofollow the rules.Third, with the construction of many new state-of-the-art theaters inChina, there is the expectation that blackout periods will become lessjustifiable; eventually there will be sufficient venues for both domesticand Hollywood films.Fourth, a number of studios have begun to pursue co-productions withChinese partners as a means of gaining greater market access and avoid-ing the restrictions that afflict standard Hollywood releases.Finally, most of the major American players in China's film business donot view the Chinese market primarily in terms of the exhibition of theat-rical films. Their interests are far broader, including theme parks, infras-tructural development and the provision of technological expertise.

Id.205. See, e.g., Movius, supra note 101 ("Mainland China is the piracy capital of

the world."); Wang, supra note 35, at 291 ("On the other hand, China's reputationfor being an intellectual property black hole is not undeserved."); IIPA, 2001 RE-PORT, supra note 43, at 25 ("It is the absence of effective and deterrent enforcementthat will drive the local copyright industries into the ground and continue to causethe international community to refer to China ignominiously . .. as the 'piracycapital of the world."'); Edward Iwata, A Quick Trip to China: Come into the BackRoom ..... .USA TODAY, Oct. 25, 2006, available at http://www.usatoday.com/money/world/2006-10-05-china-trip-x.htm?csp=N009 ("Despite years of promisedcrackdowns by Chinese authorities, China is the world's leading producer of pi-

34



CHINA, FILM PIRAC', AND HOLLYWOOD

especially at a time when Beijing wants "China to transform itselffrom the world's low-cost factory into an 'innovation society' thatmakes its own profitable technology and brand names."20 6

3. Beijing's Actual Ability to Curb Film Piracy

Even if Beijing were persuaded by the 2006 Study, the questionremains as to how effectively it can combat film piracy. As previ-ously mentioned, the local administrations often operate indepen-dent of Beijing's wishes. 20 7 Yet many commentators believe that adetermined and committed Beijing can make a difference in thefight against film piracy.208 As one commentator theorized, had thepirates turned out documentaries of the violent 1989 TiananmenSquare crackdown instead of pirated copies of The Lion King, "thefactory managers would be sharing a cell with other dissidents in aheartbeat."209

rated goods . . . " (quoting Raymond Burghardt, former U.S. Consul General inShanghai and an Asia expert at Honolulu's East West Center think tank)). "Chinaproduces around 70 percent of the world's counterfeit goods, according to ex-perts, with pirated music and video discs as well as all manner of fake brand-namedproducts widely available." Superman Battles, supra note 82 (describing China's rolein international piracy industry). "A considerable amount of very high quality pi-rate Chinese OD production continues to be exported." IIPA, 2007 REPORT, supranote 44, at 99. In 2006, pirated optical discs from China circulated in the follow-ing major world markets: "Germany, Italy, Australia, Norway, Belgium, Canada,Mexico, the United States, Russia, the United Kingdom, the Netherlands, Israel,Paraguay, Lithuania, Singapore, Taiwan, the Philippines, Indonesia, Vietnam,Hong Kong, Malaysia, Thailand, Chile, New Zealand and South Africa." Id.

206. McDonald, Piracy Hurting, supra note 201 (discussing effects of rampantpiracy on China's industrial image); see also IMPACT OF MOVIE PIRACY ON CHINA,

supra note 15, at 32 ("[P]iracy... hamper[s] the growth and creativity of China'smovie industry, reducing in number original works.").

207. For a further discussion of decentralization's role in enabling Chinesepiracy, see supra notes 86-101 and accompanying text.

208. See Priest, supra note 8, at 819 ("Many believe that widespread piracy inChina is the result of a lack of will on the central government's part to confrontand eliminate the problem.").

209. Id. at 819-20 (noting Beijing's ability to curb piracy if it chooses to)(quoting James Shinn, The China Crunch; Three Crises Loom in the Next 30 Days,WASH. PosT, Feb. 18, 1996, at Cl); see also TED C. FISHMAN, CHINA INC. 237(Scribner 2005) ("If the sellers of DVDs suddenly found a brisk market for disksthat promoted Tibetan independence, the virtues of the banned religious sectFalun Gong, or Taiwan's admission to the United Nations, these DVDs would cer-tainly disappear overnight, and all those anticounterfeiting laws on the bookswould find ready application."). For a further discussion of Beijing's view towardsFalun Gong, see infra notes 229-35 and accompanying text. Beijing considers Ti-bet to be a firm part of China despite protests from Tibetan exiles in India. SeeBarry Sautman, Comment: Is Tibet China's Colony?: The Claim of Demographic Catastro-phe, 15 COLUM.J. AsiAN L. 81, 82 (2001-2002) (discussing Tibet's right to self-deter-mination and separation from China). Likewise, Beijing considers Taiwan aprovince of China despite the latter's independent government and split with themainland after the 1949 Chinese Civil War. See Bruce Jacobs, Taiwan's History -

2007] 433

35




In a more recent case, a vendor selling counterfeit souvenirsbearing the insignia of Beijing's 2008 Summer Olympic Games wasraided by city officials and severely fined. 210 These cases suggestthat Beijing possesses the ability to combat piracy but only choosesto do so when it furthers their own interests. 211 Some commenta-tors, however, have argued that this view fails to take into accountthe complexity and enormity of the piracy problem. 212 This viewalso unfairly marginalizes the efforts made by Chinese officials tocurb piracy.2 13 After all, if Beijing were truly turning a blind eye tofilm piracy, then why would film pirates disguise their productionsites as "chicken farms?" 214

and Destiny - of Freedom from China, THE CHRISTIAN SCIENCE MONITOR, Dec. 13,2006, available at http://www.csmonitor.com/2006/1213/p09s02-coop.html(describing One-China policy, which proclaims Taiwan as China's province).

210. See Priest, supra note 8, at 820 (describing Beijing's crackdown on piracyrelated to 2008 Olympics); see also Engardio & Yang, supra note 107, at 32 (explain-ing China's copyright laws are sufficient, as evidenced by crackdown on BeijingOlympic knockoffs); Intellectual Property Theft in China and Russia: Hearing Before theSubcommittee on Courts, the Internet, and Intellectual Property of the Committee on the Judi-ciary House of Representatives, 109th Cong. 3 (2005) (statement of Rep. Berman,Member, House Comm. on the Judiciary) [hereinafter Congressional HearingBerman] (commenting on China's copyright enforcement ability). RepresentativeHoward Berman pointed out that the Chinese government in 2001 "tore down 690billboards that illegally associated products with the [Beijing 2008 Summer Olym-pics], and ripped fake Olympic emblems off 67,000 taxis." Id.

211. See Congressional Hearing Berman, supra note 210, at 3 (concluding thatChina can successfully enforce IP protection when it chooses to).

212. See Yu, Still Dissatisfied, supra note 8, at 155 ("[T]here are many causes ofpiracy and counterfeiting in China .... "); see also Priest, supra note 8, at 820("[P]iracy networks operate internationally and many pirated goods are importedinto China .... "). But see Alexa Olesen, Chinese Pirates Skirt Ban, Sell "Geisha,"ASSOCIATED PRESS, Feb. 2, 2006, http://www.boston.com/ae/movies/articles/2006/02/02/chinese-piratesskirt ban-sell-geisha/?rssid=Boston.com+%2F+A%26E+%2F+Movies (reporting how vendors in China were able to sell piratedDVDs of Memoirs of a Geisha, which was officially banned in China). Beijing's abilityto "control pop culture has withered as Internet use booms and pirates flood themarket with copies of unauthorized movies, books and music." Id.

213. See Priest, supra note 8, at 820-21 (noting that many Chinese governmentofficials genuinely want to eradicate piracy); see also Shi Jiangtao, CHINA: Intellec-tual Property Complaints Office to be Established, SOUTH CHINA MORNING POST, Apr. 14,2006, available at http://www.asiamedia.ucla.edu/article.asp?parentid=43047 (re-porting establishment of new government center for handling IP abuses). "Apartfrom focusing on protecting Olympic symbols and products, Beijing would crackdown on pirated products in retail markets, exhibitions and trade fairs." Id.

214. For a further discussion of piracy camouflage methods, see supra notes146-54 and accompanying text. "Vendors selling pirated DVDs and fake brand-name products continued to play cat and mouse with inspectors in Beijing yester-day, a day after the central government vowed to get tough on intellectual prop-erty rights violations." Irene Wang, CHINA: Fake Goods Stalls Alter Tactics AmidCrackdown, SOUTH CHINA MORNING POST, Apr. 13, 2006, available at http://www.asiamedia.ucla.edu/article.asp?parentid=42912 (discussing government efforts toimprove piracy enforcement). A customer at a pirated goods store was seen brows-

[Vol. 14: p. 399

36




While Beijing is not entirely to blame for film piracy's rampantsuccess in China, it could probably do more to confront the highrate of piracy. Despite its entrance into the WTO and the country'sdecentralization, China remains "a one party authoritarian statethat is able to act swiftly and ruthlessly to suppress... problems thatimperil national interests."215

In China, the NPC is both the "ultimate lawmaking power" andthe "preeminent organ of state authority. '21 6 While the respectivegovernmental institutions have their own reserved powers, both thefinal legislative authority and the power to appoint officials to toppositions within the State Council (the executive branch) lie withthe NPC and the Chinese Communist Party.21 7 Given this frame-work, China's government is often portrayed as possessing a "uni-fied legislature and administrative bureaucracy."218

Other non-legislative institutions also play a role in China'sgovernment. 219 While all government departments must answer tothe NPC, most legal developments are negotiated between the vari-ous government bodies and institutions.220 For example, neitherthe Supreme People's Court nor the Supreme People'sProcuratorate are legislative bodies, but both play important roles

ing through photo albums of items with brand logos such as Louis Vuitton, Gucci,and Burberry. See id. "After the customer made a selection, a saleswoman made aphone call and a man appeared several minutes later carrying a black plastic bag,which he handed over before disappearing." Id. At least two guards monitoredthe market place in an attempt to prevent such sales. See id.

215. Chow, Commercial Piracy, supra note 81, at 222 (noting Beijing's ability tocrackdown on dissidents and corruption). For example, in the 1990s, China faceda substantial smuggling problem that involved both the local administrations andthe People's Liberation Army. See id. Yet Beijing was able to virtually eradicate theproblem in a matter of years through "political reform and harsh criminal punish-ment." Id.

216. Robert Bejesky, Falun Gong & Re-Education Through Labor: Traditional Re-habilitation for the "Misdirected" to Protect Societal Stability Within China's Evolving Crimi-nal Justice System, 17 COLUM. J. AsiAN L. 147, 163 (2003-2004) (describing China'sgovernmental structure). "[T ] he NPC Standing Committee carries out the work ofthe NPC when it is not in session." Id.

217. See id. at 164 (describing relationship between China's legislative and ex-ecutive branch). "The CCP is ... the only real political party in China. . . ." Id. at165. Chinese Communist Party ("CCP") members hold most of the top govern-ment positions. See Chinese Communist Party, http://www.globalsecurity.org/mil-itary/world/china/ccp.htm [hereinafter Chinese Communist Party] (last visitedMar. 8, 2007). "The CCP is variously estimated to have between 40 million and 60million members (about 4-5 percent of the national population)." Id.

218. Bejesky, supra note 216, at 164 (asserting characterization of China'sgovernment).

219. See id. (acknowledging government roles of non-legislative institutions).

220. See id. (commenting on process behind new legal initiatives).

2007]

37




in the criminal justice system. 221 Both institutions, however, are stillsomewhat limited by the NPC which controls the appointment andremoval process. 222 In this way, China's legislative branch influ-ences and shapes the decisions reached by the judicial branch. 22 3

Holistically, this means that there is no true separation of powers atthe national level, as the will of the NPC dominates both the execu-tive and the judicial branches. 224

a. The Falun Gong Crackdown

An example illustrating the power of China's authoritariangovernment was Beijing's systematic elimination of Falun Gong, areligious group that previously spanned millions of followers acrossthe country and was viewed by Beijing as a political threat.225 FalunGong followers assert that 50,000 members were arrested, over5,000 were imprisoned, and at least 100 were killed after Beijingbegan its formal crackdown. 226 Beijing has since "broken" theFalun Gong movement.22 7

221. See id. (discussing impact of non-legislative institutions on criminal law).222. See id. at 164-65 (noting legislative branch's supervisory role over judicial

branch).223. See Bejesky, supra note 216, at 165 ("Thus, the Supreme People's Court

and the Supreme People's Procuratorate are, to some degree, responsible to theNPC, as well as informally beholden to the CCP."); see also Joseph Kahn, ChineseOfficial Warns Against Independence of Courts, N.Y. TIMES, Feb. 3, 2007, available athttp://www.nytimes.com/2007/02/03/world/asia/O3china.html?-r=l&n=Top%2fNews%2fWorld%2fCountries%20and%2OTerritories%2fChina&oref=slogin (reaf-firming judiciary branch's accountability to CCP). On its face, China's govern-ment structure resembles that of the U.S. and Europe. See id. But "[i] n practice,prosecutors and judges answer to Political-Legal Committees run by the Commu-nist Party. Verdicts in cases that involve delicate issues are decided by ranking partyofficials . . . ." Id. (citing Chinese legal experts).

224. See Major Functions and Rights of the NPC, http://english.gov.cn/2005-09/02/content_28450.htm (last visited Mar. 8, 2007) (describing NPC's politicalsupremacy under China's Constitution). Technically, China's Constitution callsfor an independent judiciary, but in reality Beijing and the CCP intervene at alllevels. See Chinese Communist Party, supra note 217 (describing CCP's strong in-fluence over China's judiciary).

225. See Chow, Commercial Piracy, supra note 81, at 222 (noting China's effec-tive response against Falun Gong). Falun Gong was a widespread religious sectthat combined Buddhism with martial arts training. See id.

226. See Sautman, supra note 209, at 90 (describing results of Beijing's re-sponse against Falun Gong movement). "Western sources estimate that as of late2000 'tens of thousands' of Falun Gong followers had been arrested, more than10,000 were in custody and 77 had died." Id.

227. See Matthew Forney, The Breaking Point, TIME AsiA WEB EXCLUSrVE, June25, 2001, http://www.time.com/time/asia/news/magazine/0,9754,165163,00.html (stating China's effective response against Falun Gong). For example, in No-vember 2000, police jailed a female Falun Gong supporter and threatened to sendher to the labor camps, where thousands of Falun Gong followers were alreadysent. See id. She remained obstinate even as her husband abused her and her boss

[Vol. 14: p. 399

38




Beijing's quick and efficient crackdown on Falun Gong can beattributed to the unified front of various government institu-tions. 228 China's top leaders recognized Falun Gong's potential asa political rival when, on April 25, 1999, ten thousand Falun Gongfollowers protested for twelve hours outside Zhongnanhai, the Chi-nese leadership compound in Beijing, over alleged pressure anddiscrimination from the government. 229 The protest was the largestorganized demonstration since the 1989 Tiananmen student pro-test and was perceived by the Chinese government to be a directchallenge to its authority. 230

Beijing initially responded by declaring Falun Gong an "illegalorganization" on July 22, 1999.231 "Between the April 1999Zhongnanhai gathering and the ultimate condemnation by the Chi-nese authorities in early 2000, a full scale attack on Falun Gong wasmarshaled, with the full backing of legal instruments from the min-istries of the State Council, the Supreme People's Court and theNational People's Congress."232 In a synchronized effort, the exec-utive branch (through the Ministry of Civil Affairs and Public Secur-ity) censored Falun Gong activities, the NPC set crimes andpenalties specifically for Falun Gong activities, and the Supreme

threatened to fire her. See id. "Then someone brought her weeping daughter tojail," which finally broke her will. Id. While the woman promised in writing "neverto demonstrate... for Falun Gong again," Beijing wanted more. Id. The govern-ment locked her up in a hotel room for five days along with other former FalunGong practitioners. See id. They ridiculed the Falun Gong doctrine and blamedthe woman for the breakdown of her family. See id. By the end of her ordeal, shehad completely renounced the religion and was later made to lead similar sessionsherself. See id. The former art teacher now says, at least for the record, that herspirituality is dead. See id. "Meeting by meeting, person by person, through a vastchain reaction of threats, slaps, intimidation and violence, China's CommunistParty has broken Falun Gong .... " Id. Nowhere was this clearer than on thesecond anniversary of the April 1999 protests, when only thirty people protested inTiananmen Square. See id. But see Anne S.Y. Cheung, In Search of a Theory of Cultand Freedom of Religion in China: The Case of Falun Gong, 13 PAc. RIM L. & POL'YJ. 1,22 (2004) (arguing Falun Gong has "proven particularly resilient despite the gov-ernment's systematic crackdown"). Despite Beijing's efforts to eliminate thegroup, Falun Gong still claims 70 million members in China and 30 million mem-bers overseas. See id. at 22 n.120.

228. For a further discussion of Beijing's efficient Falun Gong crackdown, seeinfra notes 225-35 and accompanying text.

229. See Cheung, supra note 227, at 22 (describing initial mass protest byFalun Gong members). The Falun Gong followers protested the publication of anarticle that was critical of their movement. See id.

230. See id. ("Falun Gong arguably represents the greatest internal threat thatthe Chinese government has faced in the post-Mao period ....").

231. See id. at 23 (describing initial government response to Falun Gong).232. Id. In June 1999, Beijing established the 610 Office to specifically deal

with Falun Gong. See id. The 610 Office could supersede the "the law, the courts,the procuratorial organs, public security organs and the government." Id. at 23-24.

2007]

39




People's Court zealously prosecuted Falun Gong members while ig-noring individual and group rights. 23 3

Although some Chinese leaders adopted more moderate opin-ions regarding Falun Gong prior to its suppression, after the firstjudicial enforcement proceeding, "all branches of government andinstitutions were unified in support of the crackdown. ' 234 In addi-tion to arrests and deaths, Falun Gong claims "6,000 members weresentenced without trial, 100,000 were sent to re-education camps,and several thousands were sent to mental asylums."235

b. Beijing's Crackdown on Local Government Officials

In addition to Falun Gong, Beijing has recently cracked downon corrupt local officials. 236 Led by President Hu Jintao, the gov-

233. See Bejesky, supra note 216, at 165 n.131 (describing response by eachbranch of China's government). On October 15, 1999, Chinese officials labeledFalun Gong a "cult." See Cheung, supra note 227, at 24. The Standing Committeeof the NPC then promulgated an official interpretation of the 1997 Criminal Codethat allowed for "severe punishment" of "heretical cult" members. See id. at 24-25.Finally, "in November 1999, the Supreme People's Court notified all Chinesecourts that all judicial officers should implement the NPC interpretation regardingheretical organizations, uphold the party line and apply the law in interest of main-taining social stability." Id. at 25. On November 30, 1999, the Intermediate Peo-ple's Court in Haikou heard the first case against Falun Gong members. See id."The four defendants were sentenced to two to fourteen years imprisonment fororganizing illegal gatherings and spreading Falun Gong doctrine." Id. Harsherpenalties were imposed in later trials. See id.

234. Bejesky, supra note 216, at 165 (describing unity of government effortsagainst Falun Gong).

235. Cheung, supra note 227, at 25-26 (noting results of Beijing's crackdownon Falun Gong between July 1999 and December 2001). Part of Beijing's cam-paign against Falun Gong included securing the signatures of one million childrendenouncing Falun Gong. See Forney, supra note 227 (describing further tacticsemployed by Beijing against Falun Gong). In the famous eastern lakefront city ofHangzhou, a school even forced grammar-school students to attend an anti-FalunGong lecture. See id. Afterwards, students "took turns facing their classmates toswear: 'I do not believe in Falun Gong. I believe in science."' Id. One eight-year-old surprised his teachers when he declared "I do not believe in Falun Gong. Ibelieve in Jesus." Id. The school did not discipline the student. See id. Whileteaching at a college in China in 2002, the author of this Comment was told thatFalun Gong instructed its members to "murder other people." The author hastraveled through several Chinese provinces since 2002 (a couple years after Beij-ing's Falun Gong crackdown) and never saw a trace of Falun Gong activity.

236. See Edward Cody, China's Crackdown on Corruption Still Largely Secret,WASH. POST, Dec. 31, 2006, at A19, available at http://www.washingtonpost.com/wp-dyn/content/article/2006/12/30/AR2006123000932.html (discussing removalof several major party officials in 2006 on corruption charges); China Punishes100,000 Party Members in Anti-Corruption Drive, AGENCE FR.-PRESSE, Feb. 13, 2007,http://ca.news.yahoo.com/s/afp/070213/world/china-corruption-party("Nearly 100,000 members of China's ruling Communist Party were punished lastyear for corruption .... " (quoting Gan Yisheng, Vice Secretary of the CentralCommission for Discipline Inspection)). According to Gan, "[o]f the 97,260 offi-

[Vol. 14: p. 399

40




ernment's recent campaign against bribery and embezzlement re-sulted in the dismissal of four major local officials in 2006.237 Likethe Falun Gong crackdown, the recent campaign against corruptofficials was again motivated by fear that "unless corruption isbrought under control, it will undermine [Beijing's] control in thecountry."23 8 Besides corrupt officials, Beijing's crackdown has re-moved judges for accepting bribes to fix cases. 23 9 "[I]n the 12months to June 2006, more than 3,100 commercial bribery caseswere uncovered involving government employees, worth $121million."

240

The boldness of these dismissals, along with the government'sofficial campaign against corruption, may impact the country'spiracy industry because, as noted in Section II, some local officialsand judges contribute to IP piracy by protecting or tolerating thepiracy manufacturing centers in their areas. 24 1 Bribery and othercorruption inevitably follow. 24 2 President Hu's intensifying cam-

cials who had been disciplined, over 80 percent had failed to carry out duties,taken bribes or violated the party's financial rules ... ." Id.

237. See Cody, supra note 236 (describing results of Beijing's crackdown oncorrupt officials). The first case involved Shanghai's former Communist PartyChief Chen Liangyu. See Shanghaied, ECONOMIST, Sept. 30-Oct. 6, 2006, at 49. Itappears that President Hu removed Chen as a warning to other provincial andlower level officials who have "blithely ignore[d] the central government's effortsto tame the economy." See id. The fourth case, and last major removal of 2006,involved Du Shicheng, the now former deputy party secretary of Shandong prov-ince and party secretary of Qingdao city. See Cody, supra note 235. Although thegovernment merely accused him of violating party discipline, unofficial reportsclaim that Du was "involved in kickbacks associated with a huge building boom inQingdao, a northeastern port that is home to China's best-known beer and the sitefor sailing races in the 2008 Olympic Games." Id.

238. Scott McDonald, Hu Continues Graft Crackdown in China, ASSOCIATEDPREss, Jan. 10, 2007, http://www.cbsnews.com/stories/2007/01/10/ap/world/mainD8MILP500.shtml.

239. See id. (commenting on removal of judges from Anhui province andShenzhen).

240. Id. President Hu has also begun cracking down on corruption in themilitary, which was traditionally considered untouchable. See Mark Magnier,China's Leaders Take Aim at Military Corruption, L.A. Times, Jan. 17, 2007, available athttp://www.latimes.com/news/printedition/asection/la-fg-chinal 7jan17,1,5274220.story (indicating Beijing's new tough line on military corruption). "HuJintaois showing he's now in charge .... Until now, he's moved very slowly in this area."Id. (quoting Prof. Joseph Cheng of City University of Hong Kong).

241. For a further discussion describing the role of local officials in Chinesefilm piracy, see supra notes 94-101 and 162-69 and accompanying text.

242. See Priest, supra note 8, at 823 (noting involvement of local officials inpiracy industry). "Local enforcement officials sometimes seek bribes in order toperform their duties." Id. These "fee" requests, which may amount to "tens ofthousands of dollars," pose a serious obstacle to copyright owners and companies.See id.

2007]

41




paign illustrates Beijing's ability to rein in corrupt local officials,including those responsible for IP piracy. 243

IV. CONCLUSION: PRESSURING BEIJING TO CRACK DOWN ON

FILM PIRACY

If the MPAA studios want to effectively curb film piracy, theywill have to properly address the three aforementioned piracy fac-tors: access, price, and quality.2 44 Yet it is doubtful that pursuing aWTO case or litigating against piracy retailers or suppliers will haveany effect on those three factors. The former may not succeed atall, 245 while the latter faces a myriad of obstacles including localprotectionism, a weak judiciary, and the enormity of China's IPpiracy problem. 246

Instead, the MPAA should convince Beijing that film piracy is areal threat to its economic interests, just as Falun Gong and corruptlocal officials were recognized as threats to Beijing's authority.247

This may prompt Beijing to reevaluate its own interests and con-sider initiating a crackdown on film piracy.248 To begin with, Beij-ing can unilaterally address some of the key factors behind film

243. See Cody, supra note 236 (describing Beijing's efficiency in purging cor-rupt officials). The effects of President Hu's crackdown are already being felt inChina. See id. "[O]fficials across the country have begun to think twice about ac-cepting bribes, or at least to think about keeping them discreet." Id. (quotingwealthy Beijing entrepreneur). Further, the Central Discipline Inspection Com-mission has increased its control over inspections at local levels. See id. This moveshould prevent corrupt local officials from protecting each other. Beijing, how-ever, probably cannot effectively remove corrupt officials without cooperationfrom politically independent agencies. See id. Some Chinese experts questionwhether fighting corruption by "having the party investigate its own" will be effec-tive. Id. Unless Beijing allows for an independentjudiciary to investigate and pros-ecute corrupt officials, its crackdown attempt will likely fail. See id.

244. For a further discussion of film piracy's consumer success in China, seesupra notes 62-85 and accompanying text.

245. For a further discussion of the problems confronting the U.S. in a WTOcase against China, see supra notes 107-32 and accompanying text.

246. For a further discussion of the problems confronting the MPAA in a law-suit against film piracy in China, see supra notes 133-69 and accompanying text.

247. For a further discussion of the merits on convincing China to effectivelycombat film piracy, see supra notes 170-243 and accompanying text.

248. See Chow, Commercial Piracy, supra note 81, at 224-25 (arguing that pro-tecting IP rights in China will require serious commitments from Beijing). But seeE-mail from Prof. Daniel C.K. Chow, RobertJ. Nordstrom/Porter Wright Morris &Arthur Designated Professor of Law, The Ohio State University Michael E. MoritzCollege of Law, to Oliver Ting, J.D. Candidate, 2007, Villanova University Schoolof Law (Jan. 8, 2007, 06:11:51 EST) (on file with author) (arguing that Beijing willnot likely view film piracy threat as equivalent to Falun Gong). Beijing has theability to wipe out piracy in six to twelve months if it chooses to. See id. Currently,the only counterfeit threat that Beijing takes seriously is counterfeit money, whichit effectively suppresses. See id.

42




piracy. First, China should relax the twenty foreign film quota andeliminate blackout periods, thereby eliminating film piracy's mo-nopoly on many newly released foreign films in China while creat-ing greater consumer access, a key element to film piracy'sconsumer success in China. 249

Next, Beijing should move to confront film piracy retailersand, more importantly, those film pirates in local rural areas.250

Given their brutal campaign against Falun Gong, Chinese officialsarguably cannot make excuses about their lack of power. While os-tensibly a piracy crackdown may upset rural economies and riskprotests from local populations,2 51 China remains a solid totalitar-ian state and Beijing can still effectively put down protests and up-

249. See International IPR Report Card - Assessing U.S. Government and IndustryEfforts to Enhance Chinese and Russian Enforcement of Intellectual Property Rights Beforethe Subcomm. On Courts, the Internet, and Intellectual Property of the H. Comm., 110thCong. 3 (2005), Statement of Eric H. Smith, President, International IntellectualProperty Alliance) [hereinafter Smith, IPR Report Card] (noting how Taiwan andSouth Korea were able to more effectively combat piracy after they "substantiallyreduced all significant barriers to the entry of legitimate product allowing rightholders to satisfy the demand with legitimate product"). The IIPA believes theforeign film quota is the most significant barrier to combating film piracy inChina. See id. For a further discussion of the effects of China's foreign film quotaon the film piracy industry, see supra notes 62-66 and accompanying text.

250. See China Works out Long-term Strategy for Fight Against Piracy, XINHUA, Sept.13, 2006, available at http://english.peopledaily.com.cn/200609/13/eng20060913_302336.html (describing new Chinese enforcement mechanisms against DVDand CD piracy). Government efforts to crack down on film piracy have alreadybegun. See id. China's Ministry of Culture devised a long-term enforcement mech-anism in 2006 to perform "both routine checks and occasional raids of CD andDVD stores .... " Id. Police and transport departments must "clamp down onstreet peddlers and other illegal distributors without licenses and to break thetransportation and sales network of pirated goods . . . ." Id. Chinese police havereported that by the end of August 2006, more than six million pirated DVDs andCDs were removed as part of the 100-day campaign. See id. Meanwhile, local po-lice have "raided more than 32,000 publication markets and distribution compa-nies, and closed down 355 companies engaged in bulk business of illegal copies.... Id. The campaign, which began on July 25, 2006, is "unprecedented interms of its duration and the number of government departments involved." Id.But see IIPA, 2007 REPORT, supra note 44, at 96-97 ("Reports and surveys receivedboth during and after the campaign from industry sources ... noted this vastraiding activity but concluded, as in many previous campaigns of this nature, thatpirate product remained available throughout the campaign in virtually the samequantities as before the campaign commenced."). "[W] hen news of a major DVDconfiscation is announced, the confiscation is a 'mere drop in the bucket com-pared to what really passes through the market place in China.'" Heiberg, supranote 6, at 242 (quoting Eric H. Smith, President, IIPA).

251. See Chow, Commercial Piracy, supra note 81, at 223 (arguing that piracycrackdown in rural regions will result in political instability and possible riots); seealso Michael Elliott, The Chinese Century, TIME, Jan. 22, 2007, at 35 (asserting thatthere are already tens of thousands of protests and riots by rural workers inChina).

2007]

43




risings. 252 Further, news of a piracy crackdown in a local villagemay be restricted as the state media is tightly censored and can pre-vent news of any local unrest from spreading to other regions.253

Thus, Beijing can crack down on film pirates in rural areas withoutarousing support or sympathy from surrounding communities. 254

The foreign media is also restrained as China recently announcedrules that forbid foreign agencies from distributing "news that un-dermines China's national unity or sovereignty or endangersChina's national security, reputation and interests. 255

While a Beijing-led piracy crackdown will not eradicate allcounterfeit DVDs and VCDs, it should at least help lower the cur-rently high piracy rate.256 Any decrease in the piracy rate will giveMPAA studios a fighting chance to compete against the remaining

252. See Joseph Kahn, Rioting in China Over Label on College Diplomas, N.Y.TIMES, June 22, 2006, at 2, available at http://www.nytimes.com/2006/06/22/world/asia/22china.html?pagewanted=2&ei=5088&en=ae3O8ee9e9cl293&ex=1 308628800&partner=rssnyt&emc=rss (reporting nearly 80,000 mass protests re-corded in China in 2005). "Most such events involve peasants, migrant workers orworkers laid off from state enterprises, who often lack media-savvy leaders andrarely demand substantive political change." Id.

253. REPORTERS WITHOUT BORDERS, CHINA - ANNUAL REPORT 2006 (2006),http://www.rsf.org/article.php3?idarticle=17349 (summarizing Chinese censor-ship). "Every day, Chinese editors receive a list of banned subjects from the Propa-ganda Department, renamed the Publicity Department. These includedemonstrations by peasants, the unemployed or Tibetans - nothing escapes thecensors who stoke up a climate of fear within editorial offices." Id. While teachingat two colleges in China, the author of this Comment noticed the vast majority ofstudents knew nothing of the 1989 Tiananmen protest, let alone a local uprising ina rural town.

254. See Editorial, Organ Harvesting and China's Openness, THE CHRISTIAN SCI-ENCE MONITOR, Aug. 3, 2006, available at http://www.csmonitor.com/2006/0803/p08s02-comv.html (discussing Beijing's successful attempts to silence dissidents).Beijing has "shut down more than 700 online forums, and eight search engineshave been ordered to block searches of about 1,000 banned words, including'Falun Gong' and 'Tiananmen Square.'" Id. (citing South China Morning Post).

255. Maureen Fan, Critics Dispute Impact of China's Revised Media Rules, WASH.POST, Sept. 13, 2006, at A14, available at http://www.washingtonpost.com/wp-dyn/content/article/2006/09/12/AR2006091201403.html?nav-rss.world (stating newrules for foreign media in China). The New China News Agency, the mouthpiecefor Beijing, can decide what news and information will be released in China andcan remove any information that it finds inappropriate. See id.

256. Smith, IPR Report Card, supra note 249, at 2-3 (arguing that China can,"where they have had the political will in a particular area ... work through thisproblem and bring corrupt officials to justice"). To effectively combat piracy, acountry's leadership must firmly believe that doing so is in its best interest. See id.at 3. Only then will a zero-tolerance attitude percolate down to law enforcement.See id. For example, South Korea's piracy rate in the "recording and film/videoindustries" during the 1980s was estimated at over eighty percent of the market.See id. at 2. Taiwan had piracy rates that were comparable to South Korea. See id.Yet by the mid to late 1990s, both countries had reduced their piracy rates to ten tofifteen percent. See id. The IIPA attributes these successes to a firm political willfrom their governments, which led to ajudicial crackdown on piracy, expansion of

[Vol. 14: p. 399

44



CHINA, FILM PIRncV, AND HOLLYWOOD

film piracy; perhaps by adopting the Warner Brothers' combinationof price markdowns and premature DVD releases. 257 In particular,the price markdowns on legitimate DVDs should help sustain theChinese film market as the availability of cheap pirated DVDsdeclines.

258

Even if the remaining film pirates continue to produce highquality "pristine" counterfeit DVDs, their marginally cheaper priceswill no longer be as appealing to Chinese consumers, especially astheir accessibility begins to wane. 259 This scenario should allow theMPAA studios to capture a more significant percentage of the Chi-nese film market.260

While the Superman Returns pirated DVD sales in China indi-cate an uphill fight for the MPAA, convincing Beijing to join thefight against film piracy may be the MPAA's best option for compet-ing in the world's largest market.2 61 To persuade Beijing, though,the MPAA will have to go beyond merely reiterating its grievancesand instead effectively communicate film piracy's harm to China's

market access, and cooperation with IP right holders in raiding piracy industries.See id. at 3.

257. For a further discussion of Warner Brothers' China strategy, see supranotes 83-84 and accompanying text. Besides lowering prices and releasing DVDsearlier, Warner Brothers sells its legitimate DVDs in Chinese shops where the in-ventory is almost exclusively pirated DVDs. See Guilford, supra note 80 (describingefforts to reach maximum number of customers). Most Chinese and expatriatesgenerally do not buy DVDs in department stores or other more formal retail stores.See id. Warner Brothers also became the first U.S. home video company to partnerwith a Chinese company. See Superman Returns Today - in Licensed DVDs, CHINADAILY, Sept. 28, 2006, available at http://www.chinadaily.com.cn/china/2006-09/28/content_698602.htm (stating unprecedented move by U.S. home video com-pany). China Audio Video controls fifty-one percent of the joint venture withWarner Brothers. See id.

258. See Elaine Kurtenbach, Companies Fight Back Against China Piracy, Associ-ATED PiEss, July 2, 2006, http://abcnews.go.com/Business/wireStory?id=2146055&page=3 (discussing results of Warner Brothers' efforts to sell relatively afford-able legitimate DVDs alongside pirated DVDs in China). Although he refused todisclose sales data, Tony Vaughan, the managing director of CAV Warner HomeEntertainment Co. (a Warner Brothers joint venture distribution company inChina), maintained that the early results of the company's efforts to sell cheaplegitimate DVDs in China have been positive. See id.

259. See Bootlegging Returns, supra note 1 (discussing small difference in pricebetween legitimate Warner Brothers DVD and pirated DVD in China).

260. See Kurtenbach, supra note 258 (discussing initial positive results fromselling legitimate DVDs alongside pirated DVDs). "That's part of the strategy ofgradually converting the market . . . [tihis is the beginning. There's a long, longway to go." See id. (quoting Tony Vaughan, managing director of CAV WarnerHome Entertainment Co.).

261. See Wang, supra note 35, at 299 (arguing that until IP enforcement be-comes part of Beijing's agenda, actual enforcement is "lost amidst the sea of discre-tionary bodies at the provincial, local, and national levels, and across theadministrative and judiciary sectors").

2007]

45



444 VILLANOVA SPORTS & ENT. LAw Jou'NAL [Vol. 14: p. 399

film industry and its overall economic interests. 262 In the words ofCaptain Jack Sparrow in Pirates of the Caribbean: Dead Man's Chest."We are very much alike, you and I, I and you . .. us."2 63

Oliver Ting*

262. For a further discussion on how the MPAA can effectively convince Beij-ing to crack down on film piracy, see supra notes 170-206 and accompanying text.

263. Memorable Quotes from Pirates of the Caribbean: Dead Man's Chest(2006), http://www.imdb.com/title/tt0383574/quotes (last visited Mar. 8, 2007)(listing quotes from Pirates of the Caribbean: Dead Man's Chest). For a further discus-sion on revenue loss from film piracy by MPAA studios and China, see supra notes170-206 and accompanying text.

* J.D. Candidate, May 2007, Villanova University School of Law; A.B., Ford-ham University, 2002. I thank God for His guidance and my family and the editorsat the Villanova Sports & Entertainment Law Journal for their support.

46



Pirates and the Orient: China, Film Piracy, and Hollywood

Documents

Transcript of Pirates and the Orient: China, Film Piracy, and Hollywood